Small Business: Trends in Federal Procurement in the 1990s
Released: 2001-01-29T00:00:00

Letter

Background

The federal government buys a myriad of goods and services from contractors. Federal agency acquisitions must be conducted in accordance with a set of statutes and regulations designed to accomplish several objectives, including full and open competition and various social and economic goals, such as encouraging small business participation. In the late 1980s and early 1990s, some became convinced that the federal procurement system had become complex, unwieldy, and overwrought with tension between the basic goals of efficiency and fairness because of a proliferation of requirements governing almost every aspect of the acquisition process. In this environment, there were concerns about the government's ability to take full advantage of the opportunities offered by the commercial marketplace. In response to these concerns, Congress enacted two major pieces of reform legislation, FASA and Clinger-Cohen, aimed at creating a more efficient and responsive federal acquisition system. Concerns remain about whether the changes brought about by acquisition reform during the 1990s have come at the expense of placing small business at a disadvantage.

Legislative and Other Changes That Could Affect the Ability of Small Businesses to Obtain Federal Contracts

The federal procurement process underwent many legislative and administrative changes during the 1990s, some of which have the potential to affect the ability of small businesses to obtain federal contracts. Other changes occurred during this time, such as reductions in the amount the government spent on goods and services and the size of its acquisition workforce, which agency officials believe have also encouraged procurement streamlining. These changes included the use of certain contract vehicles, such as MACs. In addition, reforms have modified the dollar range of contracts that are reserved for small businesses and encouraged the use of purchase cards, which are similar to corporate credit cards, for the use of certain purchases. Some organizations that represent small businesses are concerned that these changes could potentially erode the ability of small businesses to receive federal contracts.

Other Factors Have Affected Federal Procurement Practices

At the same time that acquisition reform legislation was enacted, other factors changed how much the federal government bought as well as the way it buys goods and services. During the 1990s, the federal government decreased the amount spent on goods and services and downsized the acquisition workforce.

The total amount of goods and services that the government purchased, including those bought with purchase cards, declined by about 7 percent from an inflation-adjusted $224 billion in fiscal year 1993 to $209 billion in fiscal year 1999. Consequently, all businesses had to compete for a reduced total of federal contract expenditures. Figure 2 shows the trend in total federal procurement expenditures during this period.

Federal agencies also reduced their acquisition workforce personnel from 165,739 in fiscal year 1990 to 128,649 in fiscal year 1998, or approximately 22 percent, during this time, with many of these reductions taking place at the Department of Defense (DOD). According to agency officials, contracting officials have sought ways to streamline procurement practices within the applicable statutes and regulations partly as a result of these workforce reductions; this includes the use of previously authorized contracting vehicles such as blanket purchase agreements (BPA), indefinite-delivery indefinite-quantity (IDIQ) contracts, and GSA federal supply schedule contracts. Appendix I provides a description of these contract vehicles.

Contract bundling is an acquisition practice that received a lot of attention in the 1990s and is often associated with but, in fact, is not actually contained in acquisition reform legislation enacted during this period. Federal agencies combine existing contracts into fewer contracts as a means of streamlining as well as reducing procurement and contract administration costs, a practice generally referred to as “contract consolidation.” A subset of consolidated contracts is “bundled contracts” that the Small Business Reauthorization Act of 1997 defines as the consolidation of two or more procurement requirements for goods or services previously provided or performed under separate, smaller contracts into a solicitation of offers for a single contract that is likely to be unsuitable for award to a small business concern due to the diversity, size, or specialized nature of the elements of the the aggregate dollar value of the anticipated award; the geographic dispersion of contract performance sites; or any combination of these three criteria.

This act requires each federal agency, to the maximum extent practicable, to (1) promote participation of small businesses by structuring its contracting requirements to facilitate competition by and among small businesses and (2) avoid the unnecessary and unjustified bundling of contracts that are likely to be unsuitable for small business participation as prime contractors.

Federal policy has also encouraged the use of governmentwide commercial purchase cards for micropurchases. The purchase card, issued to a broad range of authorized agency personnel to acquire and pay for goods and services, is similar in nature to a corporate credit card and is the preferred method for purchases of $2,500 or less. Some organizations that represent small businesses believe that the purchase card makes it easier for government personnel to make purchases from sources other than small businesses because that may be more convenient for the purchaser.

Small Businesses Continued to Achieve the Federal Procurement Goal in The 1990s, Although Their Share Has Decreased Slightly

Small businesses, as a group, have received the legislatively mandated goal for federal contract expenditures each fiscal year from 1993 to 1999. Between fiscal years 1993 and 1997, when the legislative goal was at least 20 percent, small businesses received between 24 and 25 percent of total federal contract expenditures. In both fiscal years 1998 and 1999, when the goal increased to 23 percent, small businesses received 23 percent of total federal contract expenditures. Focusing on expenditures for new contracts worth over $25,000, our analysis shows that small businesses have received between 25 and 28 percent of these expenditures during this period. In addition, focusing on the various categories of goods and services that the federal government purchases, small businesses received a higher share in fiscal year 1999 of expenditures in new contracts for most categories of goods and services than they did in fiscal year 1993. Several contract vehicles accounted for about one quarter of all governmentwide expenditures for contracts over $25,000 in fiscal year 1999, and small businesses received between 26 and 55 percent of expenditures for these contract vehicles in that year. We could not determine the amount or impact of contract bundling or the impact of the increased use of government purchase cards on small businesses. Although FASA requires that contracts over $2,500 up to $100,000 generally be reserved exclusively for small businesses, we could not determine the amount of expenditures for these contracts because, in some cases, information is reported to FPDC on contracts together with modifications.

Federal Government Is Meeting Small Business Procurement Goal

SBA and FPDC data indicate that federal agencies, as a whole, have met their annual governmentwide small business procurement goal from fiscal years 1993 to 1999. This legislative goal increased from at least 20 percent of total federal contract expenditures to 23 percent effective fiscal year 1998. Between fiscal years 1993 and 1997, when the legislative goal was at least 20 percent, small businesses received between 24 and 25 percent of total federal contract expenditures. In fiscal years 1998 and 1999, when the legislative goal increased to 23 percent, small businesses received 23 percent of total federal contract expenditures. Figure 3 shows the share of total federal contract expenditures going to small businesses for this period.

Under the Small Business Act, SBA has authority to prescribe a method to measure the participation of small businesses in federal procurement. In calculating the actual achievement of small business procurement goals for individual federal agencies, SBA excludes certain categories of procurements from the base, or denominator. SBA has identified several categories of procurements that are excluded from the base because SBA officials believe that small businesses do not have a reasonable opportunity to compete for them, including (1) foreign military sales; (2) procurement awarded and performed outside the United States; (3) purchases from mandatory sources of supplies as listed in the Federal Acquisition Regulation; and (4) purchases for specific programs from the Departments of State, Transportation, and the Treasury.

SBA's Office of Advocacy disagrees with SBA's approach of excluding categories of procurements in establishing the base. Adding back the categories of procurement that SBA excluded, the Office of Advocacy reported that small businesses received about 21 percent of total federal procurement in fiscal year 1998 (rather than the 23 percent that SBA reported) and that, therefore, the governmentwide goal for small business procurement was not met in fiscal year 1998.

Some organizations that represent small businesses have expressed concerns that small businesses are at a disadvantage when competing for new federal contracts. Therefore, we analyzed the share of expenditures for new contracts going to small businesses. These data do not include modifications to existing contracts, which account for approximately half of all governmentwide procurement expenditures during this time. Our analysis of FPDS data of new contract expenditures shows that small businesses have received between 25 and 28 percent of such expenditures for contracts worth more than $25,000 between fiscal years 1993 and 1999. Figure 4 shows the results of our analysis. In calculating the share of total expenditures on new contracts going to small businesses from fiscal years 1993 to 1999, we used FPDC data on expenditures for new contracts worth more than $25,000 and did not exclude the types of expenditures that SBA excludes to calculate the small business procurement goal.

As noted in figure 2, the federal government has been spending less money on goods and services since fiscal year 1993. The only categories of goods and services that experienced increases in governmentwide purchases on new contracts worth more than $25,000 between fiscal years 1993 and 1999 were real property and other services. Despite this overall decline in contract purchases, small businesses received a higher share in fiscal year 1999 than in fiscal year 1993 of expenditures on new contracts worth $25,000 or more than for 5 of the 8 categories of goods and services of government procurement: equipment, research and development, architect and engineering, automatic data processing services, and other services. Figure 5 shows governmentwide trends for purchases under new contracts of goods and services worth more than $25,000 and the share of these purchases going to small businesses.

We analyzed FPDS data on the governmentwide use of certain contract vehicles for contracts over $25,000, including those that became popular during the 1990s. We found that these vehicles represent a small but growing share of federal procurement expenditures. Because FPDS only captures data for some of these contract vehicles, we had to limit our analysis to MACs, IDIQs, BPAs, and GSA schedules.

Expenditures for the four types of contract vehicles we analyzed represented 25 percent of federal procurement expenditures on contracts over $25,000 in fiscal year 1999, compared with 16 percent in fiscal year 1994. Small businesses received 32 percent of expenditures for these contract vehicles in fiscal year 1999 compared with 24 percent in fiscal year 1994.

For each of the four types of contract vehicles in our analysis, the share of expenditures going to small businesses was between 26 and 55 percent in fiscal year 1999, depending on the type of contract vehicle. For example, expenditures going to small businesses for MACs increased from $524 million in fiscal year 1994, or 8 percent of all expenditures for MACs, to $2 billion in fiscal year 1999, or 26 percent of all expenditures for MACs. Expenditures going to small businesses for IDIQs from fiscal years 1994 to 1999 remained relatively stable, near $7 billion. The percentage of total expenditures for IDIQs going to small businesses increased from 24 percent of total expenditures for IDIQs in fiscal year 1994 to 28 percent in 1999. The small business share of GSA schedules increased from 27 percent in fiscal year 1994 to 36 percent in fiscal year 1999, from $523 million to $3 billion. Finally, the small business share of BPAs fell from 97 percent in fiscal year 1994 to about 55 percent in fiscal year 1999, although the expenditures increased for small businesses from about $141 million in fiscal year 1994 to about $2 billion in fiscal year 1999.

Data on Contract Bundling and Its Effect on Small Businesses Are Very Limited

In conducting a review of contract bundling in 2000, we found that there are only limited governmentwide data on the extent of contract bundling and its actual effect on small businesses. Federal agencies do not currently report information on contract bundling to FPDC; therefore, FPDC does not have data on this topic. Our review of consolidated contracts worth $12.4 billion at 3 procurement centers showed that the number of contractors and the contract dollars were generally reduced due to consolidation as agencies sought to streamline procurement and reduce its associated administrative costs. SBA determined that the consolidation of the contracts we reviewed did not necessarily constitute bundling. In fact, 2 of the largest consolidated contracts involved only large businesses and the remaining 11 consolidated contracts were awarded to small businesses.

Purchase Card Expenditures Are Increasing

We analyzed the total amount of governmentwide purchase-card expenditures for fiscal years 1993 to 1999 and found that in fiscal year 1999 such expenditures totaled $10 billion, or about 5 percent, of all federal procurement purchases. As figure 6 shows, these purchases have steadily increased since 1993, when the total amount bought with purchase cards was $527 million. These data include expenditures for all purchase-card transactions, both under and over $2,500.

FASA permits purchases for goods or services up to $2,500 from any qualified suppliers. Since FPDS does not collect detailed data on purchase- card expenditures, we could not determine what share of such governmentwide expenditures are going to small businesses.

Agency Comments and Our Evaluation

We requested comments on a draft of this report from the Administrator of SBA, the Director of OMB, and the Administrator of GSA. SBA's Chief Operating Officer provided written comments in concurrence with our report. She pointed out that preliminary data for fiscal year 2000 show that federal agencies are finding it more difficult to meet the legislative goal of ensuring that 23 percent of the value of federal prime contracts go to small businesses. We did not include data for fiscal year 2000 in our review because these data are preliminary. Another area of concern was that since detailed data on purchase-card expenditures are not included in the FPDS database, trend analyses of these expenditures were not included in our report. As we note in our report, purchase-card expenditures have increased, but data are not available to determine the share of these purchases going to small businesses. In addition, SBA's Chief Operating Officer made several technical comments that we have reflected in this report, as appropriate.

Officials from GSA's Offices of Enterprise Development and Governmentwide Policy provided technical comments that we have addressed in this report, as appropriate. OMB had no comments on our draft report. The comments we received from SBA are in appendix III.

Objectives, Scope, and Methodology

To identify procurement changes that could affect small business contractors, we reviewed FASA, the Clinger-Cohen Act, the Small Business Reauthorization Act of 1997, and the Federal Acquisition Regulation. We also identified other changes that occurred during the 1990s that might have an effect on small businesses by interviewing agency officials and representatives of industry associations, and by reviewing agency documents. We met with officials from GSA, SBA, OMB's Office of Federal Procurement Policy (OFPP), and the Procurement Executives Council. We also met with representatives of the U.S. Chamber of Commerce, Small Business Legislative Council, and Independent Office Products and Furniture Dealers Association.

To determine the trends in federal procurement from small businesses, we analyzed data from the Federal Procurement Data Center's (FPDC) Federal Procurement Report for fiscal years 1993 through 1999 and other data we requested from FPDC and SBA for those same years. FPDC administers the Federal Procurement Data System (FPDS) within GSA. Since FPDC relies on federal agencies to report their procurement information, these data are only as reliable, accurate, and complete as the agencies report. In 1998, FPDC conducted an accuracy audit and reported that the average rate of accurate reporting in the FPDS database was 96 percent. Our analyses focused on total contract expenditures for federal procurement and the percentage of expenditures going to small businesses for new contracts and for certain contract vehicles. Unless otherwise noted, all expenditures were adjusted for inflation and represent constant fiscal year 1999 dollars.

We conducted our review between March and October 2000 in accordance with generally accepted government auditing standards. A detailed discussion of our objectives, scope, and methodology is presented in appendix II.

As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report for 30 days. At that point, copies of this report will be sent to appropriate congressional committees and other interested Members of Congress; the Administrator of the Small Business Administration; the Administrator of the General Services Administration; the Director of the Office of Management and Budget; and other interested parties. We will also make copies available to others on request.

Staff acknowledgements are listed in appendix IV. If you or your staff have any questions about this report, please contact me at (202) 512-8984 or Hilary Sullivan at (214) 777-5652.

Descriptions Of Contract Vehicles

Indefinite-Delivery, Indefinite-Quantity Contract: This type of contract provides for an indefinite quantity, within stated limits, of goods or services during a fixed period of time. Agencies place separate task or delivery orders for individual requirements that specify the quantity and delivery terms associated with each order. The Federal Acquisition Regulation (FAR) expresses a preference for multiple awards of these contracts, which allows orders to be placed using a streamlined, commercial style selection process where consideration is limited to the contract awardees. The competition between the multiple awardees is designed to encourage better prices and responses than if the agency were negotiating with a single contractor. Contractors are to be afforded a fair opportunity to be considered for award of task and delivery orders but cannot generally protest the award of such orders. Indefinite-delivery, indefinite-quantity contracts include GWACs and GSA federal supply schedule contracts.

Federal Supply Schedules: Under the schedule program, GSA enters into indefinite-delivery, indefinite-quantity contracts with commercial firms to provide commercial goods and services governmentwide at stated prices for given periods of time. Authorized buyers at agencies place separate orders for individual requirements that specify the quantity and delivery terms associated with each order, and the contractor delivers products or services directly to the agency. The program is designed to provide federal agencies with a simplified process for obtaining millions of commonly used commercial supplies and services at prices associated with volume buying. The program consists of single award schedules with one supplier and multiple award schedules, in which GSA awards contracts to multiple companies supplying comparable services and products, often at varying prices. When agency requirements are to be satisfied through the use of multiple award schedules, the small business provisions (such as the exclusive reservation for small businesses for contracts over $2,500 up to $100,000) of the FAR do not apply.

Blanket Purchase Agreement: A simplified method of filling anticipated repetitive needs for supplies or services by establishing “charge accounts” with qualified sources of supply, and may include federal supply schedule contractors. Under such an agreement, the contractor and the agency agree to contract clauses applying to future orders between the parties during its term. Future orders would incorporate, by reference or attachment, clauses covering purchase limitations, authorized individuals, itemized lists of supplies or services furnished, date of delivery or shipments, billing procedures, and discounts. Under the FAR, the existence of a blanket purchase agreement does not justify purchasing from only one source or avoiding small business preferences.

Objectives, Scope, and Methodology

Our objectives were to identify (1) provisions in acquisition reform legislation enacted in the 1990s and other changes in procurement taking place during this time that could affect small business contractors and (2) trends that might indicate possible shifts in the ability of small businesses to obtain federal contracts in the 1990s.

To achieve our first objective, we analyzed several pieces of legislation enacted in the 1990s, federal acquisition regulations, governmentwide procurement data, and interviewed federal officials at several agencies. We examined the Federal Acquisition Streamlining Act of 1994 (FASA), the Clinger-Cohen Act of 1996, the Small Business Reauthorization Act of 1997, and the Federal Acquisition Regulation. We analyzed governmentwide procurement data reported by GSA's Federal Procurement Data Center (FPDC) and data on the governmentwide acquisition workforce reported by GSA's Federal Acquisition Institute in its Report on the Federal Acquisition Workforce for fiscal years 1991 and 1998. We interviewed officials at GSA, OFPP, SBA, and the Procurement Executives Council. We also interviewed representatives of the U.S. Chamber of Commerce, Small Business Legislative Council, and Independent Office Products and Furniture Dealers Association.

To achieve our second objective, we gathered governmentwide data on federal procurement from FPDC and SBA for fiscal years 1993 through 1999. We could not determine the direct impact of legislative changes and other trends on small businesses because of the numerous concurrent factors and the insufficiency of governmentwide data to directly measure the effect of these changes on small business contractors. Federal agencies report procurement data to FPDC in two categories, (1) contract awards of $25,000 or less each and (2) contract awards greater than $25,000. Each agency reports summary data on contracts worth $25,000 or less to FPDC and includes information such as type of contractor and procurement methods. Agencies report greater detail on each individual contract over $25,000 or more, including type of contract action, type of contractor, and product or service purchased. We analyzed aggregate data reported in FPDC's Federal Procurement Report for each of the years. We requested additional data from FPDC for contracts over $25,000 to include information on expenditures going to small businesses for new contracts; total expenditures going to small businesses, including for new contracts and contract modifications, for specific contract vehicles; and expenditures going to small businesses for new contracts for all products and services. The data on new contracts that FPDC provided includes expenditures on original contract actions, as opposed to expenditures on modifications to existing contracts.

FPDC categorizes all federal contract expenditures into eight broad categories of products and services. According to FPDC officials, FPDS is updated constantly as federal agencies report updated procurement information. The data we received from FPDC are as of July 2000. In addition, we analyzed the summary information on government purchase- card transactions from the Federal Procurement Report for each year. We also collected data from SBA and FPDC on the achievement of the governmentwide federal procurement goal for small businesses. The SBA data on the achievement of this goal for fiscal years 1993 through 1997 are from The State of Small Business. Because the most recent version The State of Small Business was published in fiscal year 1997, we used FPDC data published in its annual Federal Procurement Report on the achievement of the legislative goal for fiscal years 1998 and 1999. As indicated earlier, SBA began using FPDS data to calculate the achievement of the small business legislative goal as of fiscal year 1998. Although FASA requires that contracts over $2,500 up to $100,000 be exclusively reserved for small businesses, we could not determine the amount of expenditures or share going to small businesses for these contracts because, in some cases, information is reported to FPDC on contracts commingled with modifications. Unless otherwise noted, we adjusted all dollar amounts using a gross domestic product price index from the Bureau of Economic Analysis using fiscal year 1999 as the base year.

We did not independently verify FPDC or SBA data. FPDC relies on agencies to report their procurement information. Therefore, data are only as reliable, accurate, and complete as the agencies report. In 1998, however, FPDC conducted an accuracy audit of some of its data elements and reported that the average rate of accurate reporting in the FPDS database was 96 percent.

We performed our work at SBA headquarters, OFPP, and GSA headquarters. We conducted our review between March and October 2000 in accordance with generally accepted government auditing standards.

Comments From SBA

GAO Contacts and Staff Acknowledgements

GAO Contacts

Acknowledgements

Jason Bair, William Chatlos, James Higgins, Maria Santos, Adam Vodraska, and Wendy Wilson made key contributions to this report.

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