GAO Examines the Role of Mid-Sized Companies

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Most attention and analysis of government contracting focuses on the largest and the smallest members. This is particularly true in the Department of Defense where the “big 6” companies account for a majority of the contracting dollars spent by DoD each year. Small businesses are the focus of specific programs and incentives aimed at encouraging their participation in the federal marketplace. Businesses that don’t fit into either of these camps often receive much less attention. The GAO published a study this week focused on these mid-sized businesses and their important role in the defense industrial base.

The table below demonstrates the role of mid-sized businesses across federal agencies.

Studying the growth of small businesses into mid-sized businesses between 2008 and 2017, GAO found only a small number graduated from a small businesses to a mid-sized, and even fewer reached the large business category. GAO defined mid-sized as having revenue or employees up to five times that of the small business size standard. ,Of 5,339 small businesses that GAO studied starting in 2008, only 104 of them became mid-sized by 2013. Even more worrying, of those 104 businesses, only 23 remained mid-sized and won contracts through 2017. How do we help more small businesses to grow to the mid-sized level and help them remain successful? GAO focused on potential solutions and ways to create contract opportunities for these companies.

A set-aside for mid-sized businesses was contemplated and examined in the report. While there is evidence that a set-aside would increase the number of contracts going to mid-sized businesses, it would mostly come at the expense of small businesses, further preventing them from going to the mid-sized level. In addition, substantial implementation and cost burdens would be placed on the agencies administering the programs. The presence of such serious downsides discouraged GAO from recommending broad implementation of mid-sized set-asides.

Another potential solution GAO examined was to include subcontract work in past performance evaluations, allowing mid-sized businesses to build up a more robust track record of positive performance results to help them be more competitive on future contracts. Mid-sized businesses are often participating in contracts at the subcontractor level, where the quality of their performance often goes unmeasured. Allowing them to record their performance on these contracts would not only allow them to have a more robust track record but also provide agencies with more data when considering future contract awards.

Finally, modifying the small business administration size standards was considered. This involves adjusting the look-back period that the SBA uses to determine small business status from 3 years of past revenue to 5 years. This would allow growing businesses to retain access to small business programs and set-asides for a longer period before they would graduate to the mid-sized status. The Small Business Runway Extension Act of 2018 was passed in December 2018 to create this change. NDIA supported this legislation and recently submitted regulatory comments supporting the implementation of the legislation.

Click here to read the full GAO study.

Topics: Acquisition, Contracting, Procurement