The federal government provided $154.2 billion to small businesses in fiscal year 2021, an $8 billion increase over the previous fiscal year, according to data from the Small Business Administration released Tuesday.
This is a record 27.2% of total federal contract funds, exceeding the government’s goal of 23%.
“We’re excited to see more dollars and a higher percentage going to small businesses,” said SBA Administrator Isabel Guzman, adding that some of the changes announced by President Biden since taking office are beginning to take effect. The effort aims to level the playing field for small businesses competing for federal contracts in an area where many have struggled.
Still, there is work to be done. In fiscal year 2021, the number of small businesses awarded major contracts fell again, continuing a multi-year trend. The latest figures show 71,441 small businesses were awarded contracts, down 5.7% from 75,726 in FY20.
By contrast, about 125,000 small businesses contracted with the federal government in fiscal year 2010, according to The National Equity Atlas, a report produced by PolicyLink and the USC Equity Research Institute (ERI), which used SBA data.
Small business advocates cite several reasons for the difficulty small businesses face in obtaining government contracts. Part of the problem is competition from larger, more established businesses that have more experience, said Shane McCall, an equity partner at Koprince McCall Pottroff who works with small businesses. There can also be procedural headaches and legislative requirements that prevent some businesses from applying in the first place, he said.
In particular, the federal government’s bond requirements tend to disproportionately affect disadvantaged businesses, said Judith Dangerfield, senior fellow at PolicyLink, a national research institute dedicated to advancing economic and social justice. These business owners must overcome the same bias — the belief that race equals risk — that they face in banking and finance, she said. “As a result, connectivity has been a barrier to DBE firm participation for decades,” she said.
Top Federal Small Business Contracting Agencies
Guzman said she was encouraged by the positive developments in the past fiscal year. Notably, 21 of the 24 agencies monitored by the SBA received an “A+” or “A” rating on its scorecard.
Eleven agencies will receive an A+ rating: the Department of Commerce, the Department of Homeland Security, the Department of Labor, the Department of State, the Department of the Interior, the Environmental Protection Agency, the General Services Administration, the National Science Foundation, the Nuclear Regulatory Commission, the Office of Personnel Management, and the Administration small business.
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, and the Department of Veterans Affairs. , the National Aeronautics and Space Administration, and the Social Security Administration.
The government’s goals for women and minority businesses have not been met
However, this is by no means a perfect system, especially for women-owned small businesses and those located in Historically Underutilized Business Zones (HUBZones). The federal goal of awarding contracts to women-owned small businesses has only been met twice since its inception in 1994, and the HUBZone goal has never been met, Goldman Sachs CEO David Solomon wrote in a recent CNBC op-ed in which he expressed support bank for the first congressional reauthorization of the SBA in more than two decades to give it more opportunities to support small businesses.
In 2021, women-owned small businesses were awarded $26.2 billion in federal contracts, representing 4.63% of total eligible dollars for fiscal year 2021, according to the SBA. The target was 5%.
Meanwhile, HUBZone small businesses won a historic $14.3 billion in federal contracts, representing 2.53% of the FY 2021 total. That’s the highest level in about 10 years, Guzmán said, but still falls short of the government’s statutory goal of 3%.
While the agency hasn’t met those goals, Guzman said “they’re still on the horizon.”
For women-owned businesses, the SBA increased the number of certified firms from nearly 1,000 to nearly 6,000. It also expanded NAICS codes, the classification system used by the government for business categories for which women-owned businesses can receive special awards. According to the SBA, more than 92% of federal spending is covered by NAICS codes eligible for WOSB (Women-Owned Small Business) awards.
SBA also continues to work to help HUBZone businesses compete for federal contracts. In 2020, the agency simplified the rules to help these businesses compete more effectively. Guzmán said the agency is looking to “broaden coverage and make sure more companies are aware of the simplified rules.”
Helping small businesses win more federal contracts has been President Biden’s goal. Notably, the small business disadvantaged expense hit 11% for the first time, according to new SBA data. The goal is to reach 15% of federal contracts by 2025.
White House reforms for Main Street
Late last year, the White House announced key reforms to promote fairer purchasing practices. One example is the effort to reform the federal government’s use of “category management,” which has helped consolidate declining dollars, said Eliza McCullough of PolicyLink. This practice allows federal agencies to buy contracts as an organized enterprise rather than as thousands of independent buyers. That helps eliminate redundant purchasing choices, but the unintended result is that disadvantaged small businesses get a proportionately smaller share of contracts, she said.
Reforms aimed at mitigating disparities include giving agencies automatic category management “credit” for all awards made to disadvantaged small businesses and strengthening the voice of small business fairness considerations in category management, McCullough said.
“Along with increased investment in historically black-owned colleges and universities and other institutions serving communities of color to raise the next generation of black-, Latino-, and tribal-owned small businesses, these reforms democratize access to federal contracts and promote inclusive business development. ” McCullough said.