Federal contracting has experienced unprecedented change during the first 100 days of the Trump administration. Through the Department of Government Efficiency (DOGE) cuts and executive orders, the federal procurement workforce has been reduced and the regulations that have guided the acquisition of trillions of dollars of supplies, services and construction are likely to be significantly reformed. As a result, there is significant angst in the federal marketplace both on the government side of the negotiating table, and on that of industry.
Taking a step back from the seemingly daily shocks to the marketplace, we believe that nowhere is the uncertainty greater than that of small businesses across the country which service federal agencies. Despite being the drivers of innovation, efficiency and competition, seemingly minor changes to federal contracting rules have real impacts on thousands of small businesses from Key West to Anchorage and from Portland to Honolulu.
One such sector of small business government industry is that of supply and information technology integrators. Small business resellers, often called integrators or value-added resellers (VARs), are indispensable to the federal marketplace. Far from being mere “drop-shippers” who add a 5% markup, these firms deliver significant value to government buyers. They integrate products from multiple original equipment manufacturers (OEMs) to create tailored solutions, identify suppliers too small to navigate federal contracting and negotiate cost savings on behalf of agencies. Without integrators, the government would need thousands more contracting officers to manage procurement, driving up costs and complexity. Supporting these small businesses, particularly through the Small Business Administration’s Non-Manufacturer Rule (NMR), is critical to maintaining an efficient, competitive and innovative federal supply chain.
To give an idea of the depth and breadth of these services, during fiscal 2024, as measured by NAICS 541519 which encompasses “other computer related services” there are over 2,500 small businesses with obligations of $47.4 billion. Of those, there are over 490 service-disabled veteran-owned small businesses (SDVOSB) with obligations of $17.4 billion. For NAICS 334111, which includes “electronic computer manufacturing,” there are over 800 small businesses with obligations of $3.3 billion. Of those, there are 120 SDVOSBs with obligations of $732 million.
While it may be easy to dismiss these numbers as more government “waste,” that is emphatically not the case. These small businesses and SDVOSBs are delivering crucial infrastructure to executive agencies at a time when cyber threats are on the rise and the security of federal IT systems is more crucial than ever. Moreover, these small businesses and SDVOSBs are delivering these systems and components competitively, which drives innovation and price competition.
The Trump administration’s Executive Order 14275, “Restoring Common Sense to Federal Procurement,” aims to streamline the Federal Acquisition Regulation (FAR) by removing unnecessary rules while expanding the national and Defense industrial bases. The General Services Administration is taking direct aim at these small businesses and SDVOSBs through its OneGov Strategy, which allows government buyers to engage with original equipment manufacturers. As an example, GSA recently announced that it had reached an agreement with Google for utilization by agencies of Google Workspace. GSA cited significant price reductions by Google, even though such price reductions might be a “buy in” strategy, which is expressly prohibited by the FAR, or attempt to saturate the market and stifle future competition. Indeed, this procurement strategy raises significant concerns:
Are such manufacturers even interested in a direct relationship with the government?
What will be the impact on innovation?
Will this approach result in consolidation of the industrial base?
What will be the impact on small businesses across the country?
Historically, manufacturers have been reluctant to participate in the federal marketplace, owing either to reluctance to comply with federal procurement regulations or procedures, or lack of awareness of federal agency needs. Instead, especially for IT procurements, original equipment manufacturers have preferred to rely on their VARs to negotiate and facilitate complex federal data rights and intellectual property requirements. Perhaps time will tell if this acquisition strategy is effective, let alone acquisition strategies that bypass the FAR completely through reliance on “Other Transaction Authorities,” but by then it could be too late for many small businesses and SDVOSBs. For these reasons, it is crucial not to throw the baby out with the bath water, or more accurately, discard regulations, judicial decisions and agency experience and expertise. Instead, sound procurement policy requires consideration of what works and what does not work for efficient and effective procurement as well as analysis of unintended consequences of pushing out “resellers.”
While simplifying the FAR is a worthy goal, eliminating provisions like the NMR would undermine small businesses and harm government efficiency. The NMR, found in FAR Part 19 and the Small Business Act, allows small business integrators to supply products from larger manufacturers when no small business producer exists, ensuring flexibility while prioritizing small business participation.
The NMR is often misunderstood but straightforward in its purpose. It requires small businesses to source products from other small business manufacturers when available, ensuring 50% or more of the contract’s supplies come from small firms. If no small business manufacturer exists, contracting officers can request an SBA waiver to allow integrators to source from any supplier. This process encourages competition, reduces costs and brings innovative suppliers into the federal marketplace. Integrators perform extensive market research, vet suppliers and often finance nascent firms, enabling them to enter the federal space — tasks that would otherwise burden government resources.
Mischaracterizing integrators as “middlemen” ignores their critical contributions. They don’t just pass products along; they create solutions by combining OEM products to meet specific agency needs. They also seek out small or emerging suppliers who lack the capacity to work directly with the government, expanding the industrial base. By fostering competition among small businesses, integrators drive down prices, benefiting taxpayers. Without NMR waivers, many small firms would be excluded from federal contracts, leading to market consolidation akin to the aerospace sector, where fewer players mean higher costs and less innovation.
The SBA is reportedly considering a default disapproval of NMR waivers, a move that would devastate small business integrators, but could be defended by the administration as eliminating “waste.” This decision would limit their ability to compete, reduce supplier diversity, and increase procurement costs. Instead, the Trump administration should champion integrators by preserving and strengthening the NMR. Supporting these small businesses aligns with the administration’s goals of efficiency, competition and a robust industrial base. Integrators are not a problem to eliminate — they are a solution to embrace.
John Shoraka is the CEO of Strategic Growth Partners, and a former SBA associate administrator for government contracting and business development. Trevor Skelly is president of the Small Business Advisory, a former procurement counsel at the Pension Benefit Guaranty Corporation (PBGC) and a contracting officer for the Department of the Navy.
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