Is This the Right Way to Give Small Business a Bigger Piece of the Pie?

By Carol L. O’Riordan

Increasing the percentage of federal government contracts that are allocated to small business is a worthy goal. But is the best method of achieving it the automatic imposition of monetary penalties on officials whose agencies don’t meet the new standard? What about the automatic reduction of the agency’s budget?

Rep. Sam Graves (R-Mo.), the chairman of the House Small Business Committee, just introduced a bill that would increase from 23 percent to 25 percent the required percentage of government contracts that are supposed to go to small businesses.

In order to enforce the new rule, the bill would prevent senior officials from being awarded bonuses after years in which their agencies fall short of the goals for small business contracts.

Another bill, also introduced in January 2012 by Rep. Bill Owens (D-N.Y.), would penalize agencies that fall short of their small business set-aside goals by decreasing their budget by 10 percent the following year.

Do these approaches make sense?

On the government contracting blog of Crowell & Moring, associate Tiffany Wynn questions whether this approach makes sense. Since the penalty is automatic and doesn’t vary by the size of the shortfall, she asks whether its result will be the perverse one of inducing agencies to decrease their efforts to award contracts to small business if they become convinced that they won’t be able to achieve the goal in any case.

David Perera, editor of The Fierce Government blog, raises another issue concerning the Owens bill: Perhaps agencies will simply lower their goals in order to avoid the penalty and thus end up granting fewer contracts to small businesses.

Perera also wonders whether “punishing members of the senior executive service by denying them incentive payments if their agency misses its small business contracting goals is also a good idea. While SESers already earn a hefty salary even without bonuses (between $119,554 and $179,700) the notion of collective punishment sits uneasily.”

In our view, there is an added issue no one has articulated: Since those at the very top are often removed from the procurement decisions, will the proposed approaches encourage a less-than-transparent approach, and perhaps result in skewed award decisions near the end of a contract year? There are probably more flexible and more sensible ways of increasing small businesses’ participation in the economy.

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