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Navy small-business contracting to increase, even as budget decreases

The message from the Navy regarding the use of small businesses in Department of Navy contracting is a straightforward one: Expect an increase, even with decreasing budgets.

“Small businesses … as we confront the threat of budget reductions and sequestration, our intent is to increase our business with you, for the very reasons that you bring the innovation and affordability we need to succeed in this business environment,” said Sean Stackley, assistant secretary of the Navy for research, development and acquisition.

Sean Crean, director of the Navy Office of Small Business Programs, outlined where the Department of the Navy stands in terms of small-business contracts and the most recent steps the department took to increase these numbers at the National Defense Industry Association’s Navy Gold Coast conference at the San Diego Convention Center on Wednesday.

Crean used a series of 11 markers to quantify the success of engaging small businesses, the most comprehensive of which calls for roughly 16 percent of all Department of the Navy contracts to go to these companies -- a metric he said is not capturing the true activity.

“Every year we kept looking at it, and we were getting close -- we’d hit 15.2 percent, 15.5 percent -- we just weren’t getting to 16 percent,” Crean said, noting that part of the reason for this is many Navy commands simply can’t use small businesses. “Small business doesn’t build ships, small business doesn’t build fighter jets or missiles, things of that nature.”

To get a more accurate reading of available contracts going to the small business side, Crean and his team developed a “money ball” metric -- an on-base percentage, to put it in baseball terms -- called the Small Business Accessible Market, which removes the areas where small businesses typically don’t focus their efforts from the calculation: shipbuilding, missile systems, aircraft development, etc.

SBAM includes Product Service Codes where small businesses earned greater than 1 percent of market share across the federal government.

Last year, the Navy awarded a total of $77.8 billion in contracts -- $51.6 billion was deemed SBAM, and $11.7 billion was actually awarded to small businesses.

“If I can get all of my commands over 23 percent on SBAM, then in theory I should be able to hit 16 percent without any problem because I’ve changed the focus of what you’re looking at,” Crean said. “Right now, we’re just shy of hitting 23 percent overall as a Navy -- last year without monitoring SBAM we were at 22 percent at the end of the year.”

Other more specific markers include the simplified acquisition threshold category, which is delineated for contracts between $3,000 and $150,000 and ostensibly only for small businesses, but was actually only at 55 percent three years ago.

That number hit 79 percent last year, and is hovering at 81 percent today, slightly beating Crean’s goal of 80 percent.

Why the delta between 100 percent of contracts set for small businesses but only 80 percent of them actually awarded to them?

“The fact of the matter is it’ll never be 100 percent -- there’s always going to be some reason why something isn’t going to a small business,” said Crean, citing the use of engineering licenses for programs such as MATLAB, and the need to buy spare parts, as examples of situations in which a small business simply cannot provide the good or service, even though the contract amount falls between the simplified acquisition threshold.

The percentage of contracts awarded through small business set-asides is currently about 55 percent of all small business awards, though again, Crean and his team noticed inaccuracies in the data collection model that they’re now fixing.

“The legislation got changed so now we can do set-asides within multiple-award contracts, although the federal data system was set up before that time and so can’t accurately capture that information,” Crean said.

Including awards to small businesses through set-asides in multiple-award contracts, the percentage stands at 66 percent, though it’s likely even higher.

Though not every Navy command makes use of the federal government’s General Services Administration, or GSA, of all Navy contracts put into the system 67 percent are awarded to small businesses.

Two areas with lower numbers are small-business awards done through the Navy’s SeaPort-E platform, and those knowledge-based services, electronics, facilities-related services and communication work tracked through the service portfolio.

While roughly 85 percent of the companies registered on Seaport-E are considered small businesses, only 36 percent of dollars awarded through the system make it to the hands of small companies -- a difference that Crean said he’s checking into.

On the service portfolio side, the goal is for 39 percent of all contracts to go to small businesses, but the current percentage stands at more like 32 percent.

The final four metrics track awards based on socioeconomic categories against overall spend.

The goal for Small Disadvantaged Businesses is to reach 5 percent, which Crean said will happen. Historically the Navy exceeds that with 6 or 7 percent, and although it’s currently at 4.77 percent, he said, the final weeks of the fiscal year will almost certainly push that up to 5 percent.

When Crean started this job five years ago, a mere 0.8 percent of award dollars were going to Service Disabled Veteran-owned businesses. The department is at 1.84 percent now, with a goal of 3 percent. The target for Women Owned Small Businesses is also 3 percent, which has proven easier to inch toward. Last year, the Navy reached 2.65 percent, and is currently at 2.37 percent, though again that may increase in end-of-the-year spending.

Crean said the big problem is going to be reaching the Historically Underutilized Business Zone goal of 1.5 percent.

“We were doing really well a couple of years ago, moving toward that 3 percent level, then of course in 2010 they changed a significant number of businesses that we had been working with and a lot of prime contractors are no longer HUB-zoned,” Crean said, noting that the DoN is still working to increase that number.

Among the nine recent changes that Crean cited as benefiting small businesses in the DoN acquisition process, developing a Small Business Innovation Research Phase III guideline tops the list.

This document, which came out last week, helps both contracting officers and program managers use the SBIR system and capture return on investment.

Other improvements of note that came out of roundtable conversations with small businesses include a communications memo issued in June 2014, a review of SeaPort-E with consequential changes also made in June, and improvement’s to the office’s Mentor-Protégé program made in April.

Stackley encouraged the small-business community to continue to be vocal with suggestions or concerns, as the Navy is relying on them as partners.

“We need you to continue to lead competition and innovation, we need you to continue to provide the best solutions for the war fighter and the best value for the taxpayer,” Stackley said.

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