Small businesses contractors testified before Congress July 16, asking lawmakers to improve the Small Business Act, remove barriers to federal procurement marketplace entry and increase the use of subcontractors.
Witnesses told the House Small Business Subcommittee on Contracting and Infrastructure of challenges they faced, as well as opportunities for improvement. One major point was that subcontractors should be explicitly named in prime contractor’s subcontracting plans, to ensure that commitments and payments to small businesses are met. Without proper identification in contracts, subcontractors often lose the opportunity to work on projects, even after helping the prime contractor win a bid.
“We’ve all been to large contractor’s meetings, we’ve been invited on projects, and then all the sudden [another subcontractor] comes in and says, ‘I can do this,’” said Thomas J. Depace — CTS, C.O.O. and senior engineering manager of Advance Sound Company, testifying on behalf of the National Electrical Contractors Association.
“It really limits our ability to support local labor … to continue to grow in the marketplace — somebody just taking the scope and the specification documents that we’ve pined over for a long period of time and just putting a number to it,” Depace said. “Being named as a subcontractor from the start would be an advantage that would give us an opportunity to ... make sure commitments are met.”
Belinda Guadarrama — founder and CEO of GC Micro, testifying for advocacy organization GovEvolve — added that prime contractors make a profit when they switch to a cheaper subcontractor after winning a bid.
“The dollar amount is still in the [government-awarded] contract for the full amount,” said Guadarrama. “If anything, taxpayers are probably being shortchanged for the type of value [of] the original company that was added into the contract, losing the type of experience they could bring.”
Bruce Lansdowne — president and CEO of Trinity Technologies, representing the Montgomery County Chamber of Commerce — said his small business lost $2 million when a prime contractor they helped with the bidding process decided to go with another subcontractor. He said he called the government’s small business director for assistance, but to no avail.
“As a subcontractor, it didn’t have a lot of weight,” Lansdowne said. “You don’t exist pretty much in the eyes of the government, because, contractually, it’s with the prime contractor.”
Lansdowne said Congress should empower the Office of Small and Disadvantaged Business Utilization to be an advocate for small businesses and work alongside overburdened contracting officers to help give them a voice.
Witnesses also asked Congress to ensure compliance by making sure that subcontracting plans were not overlooked in contractor performance assessment reports and to define how prime contractors should show a “good faith effort” in meeting subcontracting goals.
DePace asked the committee for prompt payment of change orders by federal agencies and to the lower the federal retainage rate, both key issues for small construction businesses who need to maintain a steady cash flow in order to pay employees and manufacturers.
The Small Business Payment for Performance Act — a bill introduced in April by ranking committee member Rep. Pete Stauber, R-Minn. — addresses delayed payments. DePace called the act “a commonsense solution requiring the federal government to recognize that their delayed payments have real-world consequences for America’s small businesses.”
Witnesses also urged against the Section 809 Panel’s proposal to lower the amount of Department of Defense contracting dollars the federal government is required to award small and disadvantaged businesses annually from 23 percent to five percent. Within this set-aside requirement are specific award percentages for economically women-owned small businesses and disadvantaged women-owned small businesses, HUBZone, and service-disabled veteran-owned businesses.
Guadarrama told the committee that this change would be “extremely devastating for the small business community, who has for years now specifically been working under the small business set-asides.”
Stauber noted that maintaining the longstanding 23 percent set-aside is important as it is in the interest of competition, ensures a healthy industrial base, and protects small businesses and allows them to develop and grow.
Guadarrama also urged the committee adopt a three-year average for employee-based National American Industry Classification codes to give small businesses more time to transition into full and open competition. This would be in addition to Stauber’s Clarifying the Small Business Runway Extension Act, passed by the House July 18, which gives small firms extra time to classify as a small business so they can more easily compete for SBA benefits.
Stauber emphasized that Congress needs to make immediate changes in order to sustain domestic small businesses.
“We need to bring this back to mainstream America,” he said. “It just doesn’t smell or look right for small businesses.”