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As the Biden administration pushes major spending, small businesses fear "missing out"

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After a decade of pursuing federal contracts, small business owner Rosemary Swierk knows they're not all worth the substantial time, energy and money — sometimes five figures — it takes to bid.

"There are certain projects that we know: It's just not worth it," Swierk said. "There's a lot of ways that the federal government has unintentionally handicapped small businesses."

Her company, Direct Steel and Construction, got its foot in the door with federal contract work roughly a decade ago during the last recession as a subcontractor after she reached out to an entire list of 660 Department of Defense contractors. 

"It is an extremely hard process just for anyone to get their foot in the door," she said. 

As the Biden administration proposes trillions in new spending in the wake of the coronavirus pandemic, small businesses fear missing the chance to participate in the work, even as the administration puts emphasis on bringing more businesses in.

The federal government spent nearly $600 billion on contracts alone in the 2019 fiscal year on everything from building operations and maintenance to IT and food. As part of that, 23% of the federal procurement money must go to small businesses. 

"That's a lot of money, and that's only been increasing as the government has spent more on procurement," said Dane Stangler from the Bipartisan Policy Center. "It does contribute to economic development and to local economic development."

While the government tends to reach its small business goal each year, more of that money is going to fewer businesses: The number of small businesses participating in federal contracts has declined 38% over the past decade, the Bipartisan Policy Center found. 

Small business owners overwhelmingly support increasing opportunities through federal, state and local processes. But 88% of small business owners support changes to the federal procurement process to ensure they can receive more federal contracts, according to a new survey by Goldman Sachs, which found small businesses apply for state and local contracts more often than federal ones.

"When we asked just the population of businesses that have only done state or local work, would you be interested in applying for federal work? The good news is 75% say yes," Joe Wall, who oversees the bank's initiative educating and lobbying on behalf of small businesses. "So there's a real pipeline across a variety of industries that are very much interested in applying for federal work, and I think if the procurement system was reformed to make it more simple, to make it more transparent, to make it more accessible, there's a whole populations that could be brought into the federal contracting space."

Among small business owners who applied for state and local contracts but not federal ones, 54% said the federal procurement process is too time consuming, 42% said they had insufficient information about opportunities, 42% said the process was too complicated, 41% claimed small businesses are not adequately prioritized so securing a contract seemed unlikely, and 31% called the federal procurement process too expensive, the survey found.

"[No one] wants the government awarding our public dollars to fly-by-night operations, so those processes are in place for a reason," said Stangler. "However, if we are prioritizing small businesses in our contracting process, there is a taxpayer interest in wanting to make sure those processes are as streamlined and efficient as possible."

Even among those who had applied for federal contracts, only 51% said they feel like they are able to access the necessary information on open federal contracts — meaning nearly half don't think they know about potential work.  

"There's a lot of discovery time to just kind of find where we fit," said Ben Johnson, CEO of Freya Systems. His software and data analytics company has submitted six proposals in roughly two years. Though none have come through, Johnson hopes to get more constructive feedback moving forward. 

"I'm confident we can do great things for the government, but the existing framework and transparency is a bit of a challenge," he said.

While there are opportunities for small businesses to be subcontractors on federal prime contracts, the survey found there is a fear among small businesses of being dropped as subcontractors from projects after contracts are awarded. Of those who had applied for federal contracts, 58% said this was a significant problem.

"The challenge that we see small businesses facing, especially on contracts that are infrastructure related, the government uses a lot of larger businesses because of the size of the contracts. They don't trust small businesses to be able to do it, so they award to a few larger ones, and they expect those large businesses to then subcontract to small [ones]," said Reena Bhatia, whose company Proposal Helper works with businesses to obtain government contracts. "Well, that's a very dirty game." 

Bhatia said there are regulations in place, but it's not a guarantee smaller businesses will get the money they expect.

But the Biden administration wants to expand federal contracting to small businesses. Earlier this month, the president announced plans to increase federal contracting with small, disadvantaged businesses by 50% as part of an effort to close the racial wealth gap.

"Just imagine if, instead of denying millions of entrepreneurs the ability to access capital and contracting, we made it possible to take their dreams to the marketplace to create jobs and invest in our communities," President Joe Biden said June 1 in Tulsa.

Small Business Administrator Isabel Guzman has also said contracting programs would be a top priority under her leadership as officials with the SBA have taken note of attrition among small businesses competing for contracts. 

"We see it as an issue, and we're working closely with the White House right now to figure out how we can resolve it," said Bibi Hidalgo, associate administrator for government contracting and business development, who also managed efforts for agencies to meet the 23% small business procurement goal set under President Obama. 

Some agencies are examining ways to enhance their data systems. They've also acknowledged the need to scale up staffing after seeing exits over the past four years. 

"This is a huge — probably the largest avenue for wealth creation in the United States and potentially around the globe relative to other procurement budgets — and we have such a huge opportunity here to make sure that we create access to this opportunity," said Hidalgo.

Swierk hopes there will be more and fairer opportunities moving forward that have reasonable demands for small businesses to participate. 

"I feel if there is genuine intent to help small businesses," she said, "it is really important that these policymakers understand how difficult it is to be a federal government contractor."

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