The Biden Administration has leaned into the longstanding commitment from the federal government to support small/disadvantaged businesses (SDBs) with new SDB contracting goals. This is welcome news for small business owners, who have faced significant challenges in the volatile economic environment of the pandemic. Targeting SDBs emphasizes the worthy goals of promoting racial equity and assisting socio-economically disadvantaged businesses, but there is another motivation for highlighting partnerships with SDBs: Doing so makes good business sense for the federal government.

SDBs are key to delivering agile innovation and localized service to our defense and federal agencies, national security efforts and agency missions. An executive order announced in December 2021 outlines key initiatives and asks agencies to agree with the Small Business Administration on an agency-specific SDB contracting goal for FY 2022 that will allow the federal government to cumulatively award at least 11% of federal contract spend to SDBs in FY 2022, which increases to 15% by 2025. Agencies need proven tools and new innovations to aid in the success of these initiatives.

Leveraging construction and real property projects

Particularly in the construction industry, which continues to navigate an uncertain rebound amid supply chain challenges, it is critical to nurture the small business pipeline to ensure that federal agency mission needs are met. The federal government has executed $15-17 billion in real property maintenance, repair and alteration annually for the last four years. Much of this work is very accessible to emergent firms and those first entering the federal market, making facilities construction and services a natural entry point for SDBs. But there are contracting and operational constraints that can be a barrier to getting this work in the hands of those businesses.

An entrepreneurial and hard-working individual can start a construction company with minimal investment, but entering the federal market is harder. A construction business owner must learn to navigate federal compliance requirements like certifying payroll, acquiring bonding, and building operational capacity with staffing and skill development while engaging in resource-intensive bidding cycles.

Fortunately, there are proven contracting methodologies that can support emergent construction businesses in this path. Catalyzed by new data and technology tools, they can be leveraged to accelerate fulfillment of the current aggressive SDB contracting goals.

Reconciling SDB support and category management

For many years, federal contracting offices have been tasked with optimizing spend — doing more with less by consolidating spend under category management principles. Those practices are frequently seen as being at odds with SDB support, and indeed they can be. But when work requirements are consolidated in the right way — into long-term multi-project contracts that can be tackled by small business — the result can be a small business growth engine for SDBs.

This method of category management frees SDBs from a constant bidding cycle. It also builds much-needed small business execution capacity during a volatile post-pandemic period when many small businesses are still recovering.

One example of how appropriately consolidated construction work requirements can support small business is through Job Order Contracting (JOC, also called SABER in Air Force and some agencies). Early government-funded studies demonstrated that the JOC methodology, which leverages a long-term contract based on a unit price guide and a coefficient or adjustment factor, resulted in fewer barriers to entry into the federal market for SDBs.

At the time, most of these programs funneled construction volume to SDBs through larger prime contractors, but contracting officers soon determined that SDBs could themselves be very successful at this type of small project execution program. Now, almost all JOC programs are set aside for SDBs.

Sole source awards with fair and reasonable pricing

To meet increased SDB award goals for 2022 and beyond, contracting officers will want to leverage sole source awards, which are enabled for 8(a) firms and, in certain circumstances, for women-owned small businesses, HUBZone and service-disabled veteran-owned small business firms. The maximum award value is $4.5M for individually owned firms, while tribally-owned entities have a cap of $100M in DoD.

These relatively small awards can be executed in weeks rather than the year-long timeline of many federal procurements. But arriving at fair and reasonable pricing in the absence of competition can be a challenge. Fortunately, construction pricing data can serve as a “single source of truth” to facilitate negotiations. While commercial, third-party price guides are sometimes used, a customized set of construction tasks with preset unit prices is the gold standard for governing pricing in a contractually precise way that ensures performance standards and covers DoD- and federal-specific work items.

By intersecting sole source awards and JOC, it is possible to award quick-execution multiple project vehicles. These are sometimes called “Mini-JOCs” or “Rapid-JOCs.” In the U.S. Army Corps of Engineers, they are sometimes called Performance-Oriented Construction Agreements (POCA). When properly planned and supported, they can serve as a good foundation for small businesses looking to enter the federal market, a key tenet of the recent executive order.

By incentivizing SDBs with the potential for multiple small projects within a single contract vehicle, the government can introduce new companies into their ecosystem, reward performance and gain meaningful efficiencies in their procurement and management of projects. Many federal agencies are using sole source awards as a “quick start” to a larger, strategically planned multi-year JOC programs. It provides a way to prepare SDBs to competitively bid on the larger contract and serves as a pilot to ensure as they plan the larger acquisition.

Joint Base San Antonio (JBSA) — one of the largest DoD locations comprised of three main bases (Ft. Sam Houston, Lackland Air Force Base, and Randolph AFB) — recently awarded three 8(a) sole source contracts as part of a strategy to nurture an understanding of the JOC/SABER methodology in a location that hasn’t had one of these contracts in many years. The sole source contracts will provide much-needed federal fiscal year execution capacity and develop a competitive pool of SDBs while JBSA plans a long-term “SuperSABER” to serve all three bases.

Training and technology enablement for SDBs

There are a few challenges to fully realizing the potential of SDB execution of JOCs and sole source Mini-JOCs. The complexity of evaluating a vast set of unit prices and developing a coefficient can be daunting. The government must also fully understand the pricing to effectively negotiate a fair and reasonable coefficient.

Larger contracts can require a significant investment in data, software and training that can be a cash flow drain to emerging businesses. But turnkey, consumption-based JOC support systems can provide upfront program support in the form of technology enablement, and training can help SDBs to “demystify” JOC and engage in these programs with no up-front financial investment. Likewise, it is very low risk for the government to pilot these programs. The JOC consultant takes on a key role in coaching the SDB and ensuring success for all parties.

Leadership considerations

Accountability is a critical component of reaching any goal and it tends to start at the top of the organization. The onus should be placed on leadership to truly institutionalize achievement of small business contracting goals. Contracting offices are trained to focus on transparency and open competition, and some are wary of sole source awards.

OSDBUs, supported by contracting leadership, will need to bring into focus the value of sole source awards in developing the DoD and federal supplier base. They will also need to socialize the concept of ensuring fair and reasonable pricing through adept use of unit pricing tools, rather than direct competition.

To meet new SDB contracting goals, it will take the active support of the full federal marketplace to aid government contracting offices, 8(a)s, and other qualifying contractors in their pursuit of these awards. To continue to deliver agile innovation and localized service to our defense and federal agencies, national security efforts and agency missions, diverse small businesses must begin to thrive and stir up competition in the federal marketplace.

Lisa Cooley serves as the vice president of federal sales at Gordian.