Fewer Small Businesses Are Lining Up for Federal Contracts. Those That Did Booked a Record $154 Billion in 2021


Once again, 2021 was a pretty good year to be a small business contractor despite the continued downward trend in the amount of small businesses working with the government.

Federal agencies hit a new milestone after awarding $154.2 billion in contracts to small businesses in the last fiscal year. That figure, which was $8.5 billion higher compared to FY2020–another record-breaking year–amounts to roughly 27 percent of the total number of federal contracts awarded by the government. 

Notably, that’s a few percentage points north of its stated 23 percent goal, but the overall number of small contractors has dwindled. In FY2021, sixty-five thousand small businesses received contracts, down about 40 percent over the last decade, according to SBA Administrator Isabel Guzman, who acknowledged the problem and offered fixes

“We need to increase competition, and we need to ensure equity so that we can leverage all of those great products and services that are available out there in the marketplace through our federal spending,” Guzman tells Inc. in an exclusive interview.

One of the major issues behind this phenomenon, the SBA says, is bundling, or the practice of consolidation that makes contracts so large that small and medium-sized businesses cannot take them on. The SBA signaled during a separate call on Tuesday for media and others that the agency is working with cabinet members to clamp down on this behavior.

It’s also working on improving its stats regarding carve-outs. Small disadvantaged business spending hit 11 percent for the first time during the last fiscal year. Federal agencies also shelled out $72 billion to small business subcontractors over that same period.

But the amount of contracting dollars awa​​rded to women-owned small businesses fell short of the SBA’s stated 5 percent goal for the year. In FY2021, the spending among this group clocked in at 4.63 percent, from 4.85 percent the year prior. The agency is increasing the number of certified firms nearly sixfold along with expanding North American Industry Classification System (NAICS) code eligibility, making women-owned businesses in more diverse industries eligible for for federal spending programs. 

The government also missed its mark in reaching the three percent contracting goal for Historically Underutilized Business Zone (HUBZone) small businesses, which can include companies located in certain tribal regions or rural areas. Those businesses still received a record $14.3 billion in contract awards, or an award of 2.53 percent of eligible dollars.

Guzman says that the agency is working towards expanding the small-business supplier base to ensure that more small businesses can participate. And the agency wants to continue adjusting the application process; the SBA sought comment in late April on a proposed rule that seeks to change size standards for businesses in nine NAICS sectors–such changes would expand eligibility for the agency’s contracting programs. “SBA is looking towards creating more simple solutions so that businesses can more easily navigate the federal government programs,” she tells Inc. 

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