The federal government will provide $154.2 billion to small businesses in fiscal year 2021, an increase of $8 billion from the previous fiscal year, the Small Business Administration announced Tuesday.
This is a record 27.2% of the total federal contract funds, which exceeds the government’s goal of 23%.
“We’re very pleased to see more dollars and a greater percentage going to small businesses,” said SBA Administrator Isabel Guzman, adding that many of the changes President Biden has announced since taking office have taken hold. These efforts are aimed at leveling the playing field for small businesses competing for federal contracts, an area where many have struggled.
There is still work to be done. The number of small businesses receiving major contracts declined again in fiscal year 2021, continuing a multi-year trend. The most recent data shows that 71,441 small businesses received contracts, which is a 5.7% decrease from 75,726 in the 2020 fiscal year.
In contrast, about 125,000 small businesses contracted with the federal government in fiscal year 2010, according to SBA data compiled by PoliCylink and the USC Equity Research Institute (ERI).
Small business advocates cite several reasons for the difficulty small businesses face in purchasing government contracts. Part of the problem has to do with competition from larger, more experienced businesses, said Shane McCall, an equity partner at Koprince McCall Pottroff who works with small businesses. In addition, there may be procedural headaches and statutory requirements that prevent some businesses from applying in the first place, he said.
The federal government’s bonding requirements, in particular, disproportionately affect disadvantaged businesses, said Judith Dangerfield, a senior fellow at PolyLink, a national research and action institute focused on advancing economic and social equity. These business owners must overcome the same bias — that race equals risk — that they face in banking and finance, she said. “As a result, connectivity has been a barrier to DBE companies’ participation for decades,” she said.
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Guzman said that she is encouraged by the positive changes that happened in the last fiscal year. Specifically, 21 of the 24 agencies monitored by the SBA earned an “A+” or “A” rating on the scorecard.
The 11 agencies receiving an “A+” grade are: Department of Commerce, Department of Homeland Security, Department of Labor, Department of State, Department of the Interior, Environmental Protection Agency, General Services Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management and Small Business Administration.
Ten agencies received an “A” rating: the Agency for International Development, the Department of Agriculture, the Department of Defense, the Department of Education, the Department of Energy, the Department of Justice, the Department of Transportation, the Department of Veterans Affairs, the National Aeronautics and Space Administration, and the Social Security Administration.
Government goals for women and minority businesses not met.
Still, it’s by no means a perfect system, especially for women-owned small businesses and those in historically disadvantaged business zones (HUBZones). The federal contracting goal for women-owned small businesses has only been met twice since its inception in 1994, and the HUBZone goal has never been met, said Goldman Sachs CEO David Solomon in a recent interview with CNBC, expressing the bank’s support. Congress reauthorized the SBA for the first time in more than two decades to provide greater ability to support small businesses.
In the year In 2021, women-owned small businesses received $26.2 billion in federal contracts, representing 4.63% of total eligible dollars for fiscal year 2021, according to the SBA. The goal was 5%.
HUBZone small businesses, meanwhile, received a historic $14.3 billion in federal contract awards, representing 2.53% of total eligible dollars in fiscal year 2021. It’s the highest level in 10 years, Guzman said, but still short of the government’s 3% statutory goal.
Even if the agency hasn’t met those goals, Guzman said, “they’re still on the horizon.”
Women-Owned Businesses The SBA has increased the number of certified organizations from about 1,000 to 6,000. It also expanded the NAICS codes the government uses for business categories, for which women-owned businesses receive special awards. More than 92% of federal spending under NAICS is funded through awards set aside for WOSB (Women-Owned Small Businesses), according to the SBA.
SBA also continues to work on helping HUBZone businesses compete for federal contracts. In the year In 2020, the agency simplified rules to help these businesses compete more effectively. Guzman said the agency “aims to expand services and make more businesses aware of the simple rules.”
Helping small businesses get more federal contracts is President Biden’s goal. Notably, according to the latest SBA data, small business expenses rose to 11% for the first time. In the year It is to hit 15% of federal contracts by 2025.
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Late last year, the White House announced key reforms to promote fairer shopping practices. PolicyLink contributor Eliza McCullough said the federal government’s efforts to improve its use of “category management” has contributed to the strengthening of the dollar contract. This system allows federal agencies to purchase contracts as an organized entity rather than from thousands of independent buyers. This helps eliminate multiple purchasing choices, but the unintended consequence is that smaller, struggling businesses get a disproportionately lower share of contracts, she said.
Reforms to address inequity include giving agencies an automatic “credit” for all awards under category management to small and disadvantaged businesses and strengthening the small business equity voice in category management, McCullough said.
“Along with increased investment in historically black colleges and universities and other institutions serving communities of color to grow the next generation of Black-, Latinx- and ethnic-owned small businesses, these reforms will democratize access to federal contracts and promote inclusive business development,” McCullough said.
