The government exceeded its 23 percent small business contracting goal, awarding 26.5 percent of federal contract dollars to small businesses.
The government also exceeded its contracting goals for small disadvantaged businesses, women-owned small businesses, and service-disabled veteran-owned small businesses and increased its contracting with HUBZONE small businesses.
While the government exceeded some of its subcontracting goals, its subcontracting percentages with small disadvantaged businesses, service-disabled veteran-owned small businesses, and HUBZONE small businesses declined.

The U.S. Small Business Administration (SBA) announced that the government exceeded its 23 percent small business contracting goal for fiscal year (FY) 2019. The government awarded 26.5 percent of federal contract dollars to small businesses, which translates to nearly $133 billion—a $12 billion increase from FY 2018. The SBA’s government-wide scorecard shows that the government also exceeded its five-percent goals for small disadvantaged business (10.29 percent) and women-owned small business (5.19 percent), and its three-percent goal for service-disabled veteran-owned small business (4.39 percent). The government achieved the five-percent goal for women-owned small business for only the second time since the SBA began releasing scorecards in FY 2007. Although the government’s prime contract awards to HUBZONE small businesses did not reach the three-percent goal, this contracting increased from 2.05 percent to 2.28 percent. For small business subcontracting, however, the government did not reach its goals for small disadvantaged businesses, service-disabled veteran-owned small businesses, or HUBZONE small businesses. In fact, the percentage of subcontracting to such businesses declined for each of these categories.

While the SBA announcement did not address the reasons for these prime contracting increases, there are several possible explanations. First, the share of the federal procurement budget being used to acquire services appears to be continuing to grow, especially for information technology services where businesses do not need to make substantial capital investment in equipment to compete. Second, contracting officers appear to increasingly be using multiple award contracts and government-wide acquisition contracts, such as SeaPort-NxG, OASIS and STARS, for small business set-asides. By ordering from these contracts, agencies can take advantage of the flexibility of ordering under Federal Acquisition Regulation Part 16 and avoid bid protests for orders under $10 million for civilian contracts and under $25 million for defense contracts. Finally, the All Small Mentor-Protégé program (MPP) allows all small businesses to form joint ventures with large or other small businesses and still compete for small business set-aside contracts. The use of a joint venture allows the small business to compete more effectively, buttressed by the capabilities, resources and experience of another, usually large, business. As of August 5, 2020, the SBA indicates that there are over 1,100 joint ventures participating in the MPP.

There are also several reasons why we expect this increase in small business contracting to continue. The Small Business Jobs Act of 2010 required the SBA to adjust the revenue-based size standards for small business to account for inflation every five years. The SBA adjusted those size standards just last year by approximately 8.3 percent. Further, the Small Business Runway Extension Act of 2018 extended the period, from three to five years, for contractors under revenue-based size standards to determine eligibility for small business size status, including for set-aside contracts. The regulations implementing the Runaway Extension Act became effective only recently. The five-year period may allow growing firms to retain their small business size status longer. Finally, the SBA made changes to its HUBZone rules in late 2019 that will make it easier for small businesses to comply with the program’s requirements and make the program more attractive to procuring agencies.

These changes to SBA rules are not the only reason that small business contracting may continue to increase. In March 2020, the Department of Defense issued a class deviation that increased the threshold—from $22 million to $100 million—for contracting officers to award sole-source contracts without justification or approval under the SBA’s 8(a) program. The class deviation makes it easier for contracting officers to award 8(a) sole source contracts without competition to firms owned by an Indian Tribe, the Alaska Native Corporation or the Native Hawaiian Organization.

Because these recent developments indicate that the amount of small business contracts should continue to increase, small and large business should consider these developments in their business development planning. For small businesses, obtaining one or more multiple-award contracts is more important than ever, and firms should seek out those opportunities whenever available. Small business contractors should also consider obtaining a mentor through the MPP, as it provides valuable business development assistance and the ability to compete on more complex government contracts. Similarly, large businesses should consider pursuing a protégé to joint venture with and have access to performing a substantial portion of the set-aside contracts. Finally, for large businesses, there may be more government emphasis on meeting the goals in their small business subcontracting plans. In sum, the SBA’s announcement demonstrates that the government is committed to achieving its small business contracting goals and will continue to provide significant opportunities for small businesses.

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