Small and Mid-Tier Businesses: Time for a Deep Breath

July 16, 2012

The Small Business Administration recently released its annual scorecard on agency small business awards. On the surface it appears to be grim—small business prime contracting in fiscal year 2011 dropped below 22 percent after several years of flirting with the 23 percent goal. While the news was not particularly good, and the report should not be ignored, it's also important not to over-react to it. One year does not a trend make and the report needs to be seen in the context of the year it reflects.

And fiscal 2011 was an unusual year.

In 2011, agencies did not get their final appropriation until the beginning of the third quarter. The appropriations' passage was followed immediately by the debt ceiling debate, which, while not directly tied to immediate spending, had a real effect on agencies' planning and spending commitments. As a result, the overall market for government services was down nearly 4 percent—or four times more than the reduction in small business's share of the market. While the two data points are not immediately comparable, since one looks at total spending and the other at market share, they are not entirely disconnected either. For example, the final spending bill compelled instant spending reductions by agencies, a significant portion of which, it is safe to assume, were low hanging fruit drawn from smaller contracts that were disproportionately performed by small business.

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