If DOD wants small business contracts, it has to cut the red tape

Department of Defense (DOD) officials are seeking input by Oct. 25 from small business executives on how the department can make contracting opportunities more attractive to small businesses. 

Deputy Secretary of Defense Kathleen Hicks recently noted that over the past decade, the number of small businesses in the defense industrial base shrank by over 40 percent. “The data shows that if we continue along the same trend, we could lose an additional 15,000 suppliers over the next 10 years.”

You don’t need another survey to know why small business enterprises are not participating in defense procurement. The main problem is complex, confusing, and inefficient contracting procedures. Since World War II, the Congress has incrementally legislated a brain numbing slate of rules and regulations that no one fully understands and which have created a virtual straight jacket for procurement officers. Many small contractors simply cannot afford the platoon of specialized legal experts needed to penetrate the paper wall to bid successfully. Congress created this problem and legislation will be needed to fix it.

A good example is the Army’s effort to procure a new handgun. Why spend almost a decade, with complex military specifications at high unit costs, to buy such a low end weapon? As Army Chief of Staff General Mark Milley noted during the 2016 Future of Wars Conference, this program had a 367-page requirement document. Years of inaction, indecision, and false starts so delayed the purchase of a new handgun that during congressional testimony, Milley offered to go to a local gun store and buy sidearms off the shelf. He blamed the delays on the DOD’s bureaucratic procurement system. 

The list of defense procurement horror stories is virtually endless, but somehow the DOD cannot solve problems that any profitable manufacturing company figured out long ago. It’s so bad that many capable and efficient U.S. companies, especially small enterprises, will not bid on DOD contracts simply because wading through the arcane procedures, written and administered by battalions of lawyers, is too costly in time and resources. The DOD cannot solve this problem alone; new legislation is needed. The Secretary of Defense should urge Congress to begin immediately to rewrite the government procurement rules and regulations.  

But there are things the DOD can do to attract more small and nontraditional companies to bid on defense contracts. Ask any small business executive why they don’t seek government contracts and you hear several common complaints. First, there is a perceived lack of access to and communication from the DOD. It’s not easy for a small business to find out that the department needs what it can produce. And once they do find out, it’s not easy to gain entry into the defense procurement system. Large defense contractors have offices staffed with people skilled in watching for government notices of contracting opportunities and who know how to approach the system. Increased DOD outreach efforts, call it “procurement facilitation,” focused on coaching interested companies through the contracting wickets, could get more small businesses involved in the defense industrial base.

Second, the detailed, overly complex, and inefficient bid and selection processes are major barriers. The administrative process and microscopic management of contracts create extra work, delays, and increased costs which are strong disincentives. And finally, the lengthy funding timeline and final payment delays are major disincentives for businesses that operate on small cash flows and costly lines of credit. There are steps the DOD should take in each of these areas to make government procurement more attractive to small enterprises.

Finally, encouraging a DOD ethic of buying off-the-shelf to meet equipment needs can provide immediate opportunities for small businesses. The DOD’s focus on writing overly detailed specifications frequently rules out many small businesses. If the focus were more on getting “good enough” capabilities instead of perfect, small businesses could provide more products quicker and at lower cost.

Serving on a source selection board has highlighted other problems. By the second day, one board had agreed on the best bid and rank-ordered the five competing companies based on judgments of each’s ability to complete the contract. First, the contracting officer provided the wrong format to write up the findings, which wasted a day. After a second writeup using a different format, the contracting officer and the attorney advisor got into a heated argument in front of the board about how the selection should be presented. It took four more days because the lawyer’s main concern was “bullet proofing” the selection decision against a successful challenge from one of the losing bidders.

The reality is that our present government procurement regulations are not focused primarily on getting the best company to provide the right capability. The main focus is on preventing corruption in the procurement process and ensuring time consuming and costly challenges to selection decisions are not successful.

Simplification is the key. Politicians should avoid the eternal temptation to create separate programs for small business procurement. These generally complicate procurements and create a misplaced sense of charity, something most companies really aren’t seeking. The entire procurement process needs to be reviewed to clean out picayune requirements that may once have had good purpose, but now advantage large procurement offices small companies can’t afford. Making the process simpler for all companies helps level the field for smaller competitors without creating perceived favoritism.  

So, if you want “the participation of dynamic, resilient, and innovative small businesses in the defense industrial base” as Ms. Hicks suggests, Congress needs to start immediately to write legislation to simplify government procurement processes and reduce the mountains of red tape small businesses face trying to compete for government contracts. 

John Fairlamb, Ph.D., is a retired U.S. Army colonel who served for 45 years as a commissioned officer and Department of the Army civilian in a wide variety of Army and Joint Service positions. His doctorate is in comparative defense policy analysis.

Stephen K. Craven is a former U.S. commercial diplomat and trade negotiator. He was among the negotiators of the General Agreement on Tariffs and Trade (GATT) Agreement on Government Procurement.