Small Businesses Critical to Large Efforts

July 2002
By Maryann Lawlor
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Acquisition community seeks strong relationship with firms of all sizes.

The U.S. Defense Department is counting on small businesses to support its transformation, e-government and homeland security initiatives. Although the military is known for the procurement of large weapons and information technology systems, department acquisition officials recognize that success demands the innovation and support of hundreds of smaller, yet key, firms. Enlisting the expertise of these modest-size businesses enables the department and large companies to provide for the full spectrum of warfighter needs.

Because the Defense Department accounts for approximately 65 percent of total federal procurement dollars, winning contracts with the agency is critical to the success of small businesses. In fiscal year 2000, for example, the department procured $48 billion in goods and services from small firms. Although not typically thought of as prime contractors, small companies were awarded more than half of these contracts as the prime. While the effort to draw small businesses into the Defense Department acquisition process is substantial, officials recognize the need to improve their endeavors.

Deidre Lee, director of defense procurement, Office of the Secretary of Defense, maintains that the department is not doing business with small firms just to say that it has a small-business program. She believes fervently that small businesses have a lot to offer in terms of innovation, creativity and support. With the huge tasks the Defense Department and the federal government in general must accomplish, they need capabilities from all sectors of industry, including small businesses, she says.

Several initiatives have been adopted to increase utilization of the small business sector and determine how well the Defense Department is accomplishing this goal. For example, the department has sharpened its focus on small business subcontracting performance with its prime contractors. It holds annual contractor reviews with the leaders of the major defense firms and is examining ways it can improve its routine oversight of other large contractors’ performance to determine whether the negotiated subcontracting plans have been followed, Lee explains.

In the e-government arena, small companies are both benefiting from automated processes and contributing to the government’s move toward facilitating access to agencies. “E-government is helping us to engage small business from a procurement standpoint. Solicitations reach small business more quickly. From the other side, small businesses are involved in helping to make e-government a reality,” Lee offers.

These firms also are a vital part of the military’s transformation goals, she says. “Transformation is looking at how swift the Defense Department can be, and that’s everything from the front lines to the back office. How can we do it better? This is where small businesses are called to the top. They are so quick to turn things around and so agile in their work, and that’s a huge contribution,” she notes.

And it is the unique contributions that small firms bring to the Defense Department and not just facts and figures that Lee emphasizes are important to the military. “The department wants to do business with small firms because they have much to offer. The challenge we have is that the Defense Department is a collection of large and complex systems. How do we make sure they recognize that we want to work with them, and how do we recognize what we need to do to overcome problems? We have to be aware of how large a problem this is and how it impacts the small community,” she explains.

Creating a good working relationship among the numerous components of the Defense Department and the many small businesses requires that each invests both time and talent in defining and researching needs. “I have a lot of business owners come in and say, ‘This is what we do. Now, help me find work.’ You have to understand what we need and be able to articulate well what problems you solve. Company officials need to be able to say, ‘I understand your needs, and this is how I meet those needs.’ It’s a communication style. We also have to articulate our needs better. We need to understand our business and how their product contributes to our success,” Lee asserts.

Small businesses that are interested in working with the Defense Department need to invest time in research, Lee proposes. “Take the time to understand your customers. Talk to the agency and know where its headed. Merge that information with your capabilities. Determine what contributions you want to make. And then we have to start giving you the opportunities to meet with the program people and understand the requirements,” she says. The key, Lee adds, is to understand where a specific group is versus where it wants to go.

To begin the process, Lee suggests contacting the local or regional Defense Department Small and Disadvantaged Business Utilization (SADBU) office. “They have some information and can help small businesses obtain a contact in the right offices,” she offers.

SADBU offers programs for small business in general as well as specific categories of firms. The Mentor-Protégé project facilitates relationships between major Defense Department prime contractors and small disadvantaged businesses. The Small Business Innovation Research and Small Business Technology Transfer programs fund $600 million annually in early-stage research and development projects at small technology companies. The Women-Owned Small Business project focuses on the department’s effort to achieve a 5 percent goal for prime and subcontract awards to firms owned and controlled by women. Other projects, such as the Indian Incentive Program, focus on assisting minority-owned firms. Regional Councils for Small Business Education and Advocacy under SADBU are a network of specialists that promote nationwide small business programs.

Although Lee recognizes the need for such specialized groups, she notes that, at times, the compartments rather than the overall contributions of small companies become the focus in the Defense Department. “These can be a little divisive, but we have to look at the revenue from making small businesses a permanent part of the industrial landscape. A lot of that has to do with scoping the project so that there’s a lot of small business involvement,” she contends.

The way the Defense Department evaluates small business’ contributions in large contracts leads to underestimating the role they play, Lee allows. Many times, programs are examined in terms of the work that tier-one and tier-two companies perform. Some small firms fall below the line of the second tier even though their input is critical to a project. As a result, they are not recognized as key contributors, so small businesses that want to work with the Defense Department are not aware of the role they play and are reluctant to go after large projects. “One perception feeds into the other,” Lee explains.

To correct this misconception, Lee recommends that department program managers ask prime contractors to provide details about all the expertise that small businesses furnish in a project. She suggests that specific questions be posed. “What companies make up your team, and what is the involvement of small business? What are the goals, and where is the emphasis? What is your evaluation of their contribution? This is critical data,” Lee submits.

The Defense Department faces another challenge called bundling. Small projects are grouped in such a way that a small company can no longer handle the job.

In January, E.C. Aldridge Jr., undersecretary of defense for acquisition, technology and logistics, Office of the Secretary of Defense, issued a memorandum to service acquisition executives and directors of defense agencies regarding small business participation in consolidated contracts. In it, Aldridge said that program managers or other officials responsible for acquisition planning must ensure that small business participation is considered from planning through execution of a program. “I recognize that consolidation of requirements previously bought on smaller contracts in some instances may be deemed necessary and justified. However, when the department consolidates requirements, we must avoid unnecessary and unjustified bundling of requirements and take steps to mitigate the negative impact that contract bundling has on small business concerns,” Aldridge said in the memo.

While the department is taking care to ensure that small business interests are protected when contracts are consolidated, Lee proposes that small firms can address multifaceted contract requirements by creating a consolidation of sorts of their own—otherwise known as collaboration. Small companies are now allowed to work together on a project and still be considered small even if the combined personnel count or revenues would disqualify them as a small business. Some collaboration of this type has taken place; however, Lee says she would love to see more of it.

Defense leaders are serious about ensuring that small business goals are being met, and this is being done through accountability, Lee offers. Although defense agencies regularly evaluate small firm involvement in their organizations, these reports were used internally and only shared annually with Defense Department leaders. Under a policy Aldridge instituted last year, each agency and the Defense Department as a whole is responsible for developing an annual small business improvement plan and later is rated on its adherence to the plan and established targets. Secretaries of the military departments and directors of the defense agencies report semi-annually to Aldridge’s office. Aldridge, in turn, reports to the deputy secretary of defense on how actual performance compares to targets and small business improvement plans.

Lee points out that setting and meeting these types of goals is a governmentwide effort, not just a goal of the military. However, because the Defense Department makes up such a large portion of the government procurement community, if it does not meet its goals, it will appear that the federal government is falling short, she says.


Additional information on bid solicitation opportunities that exceed $25,000 across the federal government are available on the World Wide Web at, and from the Small and Disadvantaged Business Utilization office at

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