Kenneth Fletcher and Todd Jacobson
NS&D Monitor
1/24/2014
Some small businesses are concerned about the potential impacts of a provision passed by Congress last week that allows some subcontracts to be counted toward the Department of Energy’s small business prime contracting goal. The omnibus appropriations bill signed into law last week includes language that would allow “first tier subcontracts that are awarded by Management and Operating contractors sponsored by the Department of Energy” to small and disadvantaged businesses to “be considered toward the annually established agency and Government wide goals for procurement contracts awarded.” With many small businesses across the DOE complex already struggling, some officials worry that the language will lead to less DOE small business prime contracts.
Having M&O subcontracts count toward small business goals will take pressure off the Department for small business prime contracts, one industry official said. “They can ‘outsource’ the funds to the large M&Os or the labs and take credit for small business subcontracting to meet quotas,” the official wrote in an email to NW&M Monitor. “If that’s the end game, it’s bad for companies like ours. Everything will be funneled through these large companies and the rigor and oversight on procurement/subcontracting is far less than what DOE-HQ puts in place. It becomes more of who knows who to get the jobs.”
DOE Failing to Meet Small Business Goals
While the Department has failed to meet its small business prime contracting goal of 10 percent set by the Small Business Administration, it has done better with subcontracts. In Fiscal Year 2012, small business prime contracts only made up 5.15 percent of DOE primes, but DOE nearly reached its small business subcontracting goal of 52 percent. That year DOE earned a failing grade in the SBA’s procurement scorecard. “This reflects, in large part, to the unique structure of the Department and its management and operating (M&O) contracts with the national labs,” according to comments on the scorecard. “While the Department did not make the 10% prime contract goal, as noted above, DOE did obligate over a quarter of our procurement dollars to small businesses.” While the bulk of the Department’s M&O contracts are at the national labs, the Office of Environmental Management also has M&O contracts in place at the Savannah River Site and the Waste Isolation Pilot Plant.
Lawmakers Believe Change Could Save Money
It’s not the first time lawmakers have tried to make the change—similar language was included in report language accompanying last year’s Senate Energy and Water Appropriations bill, which never passed Congress. Appropriators decided to include the provision to avoid pressure on DOE to pull small business subcontracting from sites, which “detract from the mission of cleanup and the mission of the labs,” one Congressional aide told NW&M Monitor. “You’d be letting a huge number of prime contracts through DOE contracting rather than the prime … doing it themselves. In the end the amount of small business contracting isn’t going to go up on what the Administration was pushing to do—and it would cost the taxpayers tens of millions of dollars more to have that amount of federal workforce in place to manage those contracts as primes rather than as subs, when that infrastructure is already in place at the sites.”
Small Businesses ‘Cost Them Less Money’
But several small business officials disagreed, arguing that small business prime contracts generally save the Department money due to the markup prime contractors place on subcontractors when billing DOE. “In reality it costs them less money when the small businesses do it. I mean, not a little bit less money, a lot less money,” an industry executive told NW&M Monitor, adding, “It is not that they save money by doing this. What happened is that since they have all these large M&Os they want to take advantage of the fact that the M&Os subcontract to get their numbers up.” The executive added that lower costs for small businesses are not only associated with markups. “You don’t have a big infrastructure you have to feed. You have access to the decisionmakers and we are always looking at ways to save money, and be lean and more effective,” the executive said.
But cost savings is not the only reason Congress made the change. The Congressional aide also suggested that more federal prime contracts could present a coordination issue at various sites. The aide noted that having two prime contracts at the Y-12 National Security Complex, one for management of the site and another for security at the site, contributed to the July 2012 security breach there. “Having it as a prime doesn’t make it as effective as having it as a sub under someone coordinating it,” the aide said. Another concern is that increasing pressure for small business primes could negatively impact local small businesses. “You could create an incentive for out-of-community small businesses, out-of-state small businesses, to come in and compete for these contracts on a prime that a local company was getting on a subcontract,” the aide said.
DOE Emphasizes ‘Small Business First Policy’
DOE and the National Nuclear Security Administration did not respond to request for comment this week on the small business provision in the bill. However, last week Energy Secretary Ernest Moniz sent a memo emphasizing DOE’s “Small Business First Policy, which sets forth the Department of Energy’s commitment to maximizing opportunities for small business, including prime contracts and subcontracts, while driving towards operational excellence and efficiency across the enterprise,” the memo states. It adds, “The Department is a leader in providing opportunities to the small business community with respect to the total amount of dollars provided to small business prime contractors and subcontractors.” It notes that according to the SBA, the Department ranked second and fourth among federal agencies in FY 2011 ($8.1 billion) and FY 2012 ($6.3 billion) in total small business contracting.
Set-Asides ‘Not Always In the Best Interest’
And not all small business officials agreed that the change would become a major concern for them. “I think what the clients ought to do is get the best service possible to meet their needs. I don’t think it matters whether it’s a large business or a small business. The best is what’s most important, and if you’re a small business relying just on set-asides, that’s maybe not always in the best interest of the government,” another small business official told NW&M Monitor. The official noted that some small businesses had struggled in prime roles.”You’re setting up small companies to do more than they’re capable of doing and they end up failing,” the official said.
The official said competent small businesses should be able to succeed regardless of set asides. “I’m more Darwinian about it than most people. The idea that small businesses are good by definition and large businesses are not good by definition is stupid,” the official said. “If you’re competent it gives you a chance to compete, you learn how to compete. There are still mentorship opportunities. There still will be small business set-asides. Your job as a small business is to make sure you get your share by being competitive, by being a good partner, by demonstrating you have the ability to meet your end of the bargain when there’s an opportunity.”
Small Business Want ‘Meaningful’ Contracts
But many small businesses struggling as a result of federal budget cuts and an increase in staff augmentation subcontracts for DOE work see the change as bad news. “I think it is going to reduce the opportunities as prime contractors. That’s one negative effect, and it is not going to increase the second tier subcontracts as well,” the executive said. A different small business official said the move goes against the spirit of small business goals. “One of the key words that’s not in there, that they to seem to fall back on all the time, is meaningful small business contracts,” that official said. “If it’s going to go back to commodities, which is real easy for an M&O contractor to do, all they are going to do is buy their stationary and janitorial supplies from a small business. They can make it up with one or two contracts.”
