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Small Business Contracting Landscape Experiences Changes, Challenges and Big Opportunities

An 18-month stretch that included a pandemic, recession, change of government and a wave of merger and acquisition activity has, understandably, shaken up the contracting environment for small businesses in the Fort Meade Region. Small companies vying for work with Fort Meade clients are facing a mix of robust opportunities, diminished competition, heightened challenges and new avenues to success. The FMA has been following shifts in the market and how they might impact the work of our members.

Although the pandemic slowed the startup of S of X Technology Partners last year, the new company has experienced steady growth since August 2020 and sees more than ample opportunities on the horizon.

“Getting work hasn’t been that challenging. There is more work than there are people to do it at this time,” said Quentin Smith, COO. Even though S of X has been added staff monthly, “I think we will continue to have more work than we can staff going forward. In some ways, that’s a good problem to have.”

Several contracting tools and trends have been stoking opportunities for small businesses, Smith said.

NSA seems to have used NSA Set-Aside for Small Business (NSETS) 3 a lot more than previous versions of NSETs and that has produced a lot of interesting work for a lot of different small companies,” he said. “It’s a pretty successful vehicle and they are about to compete NSETS 4.”

The agency’s Large-Small Mission Focused Team (LSMFT) approach to contracting has enabled more small companies to land prime contracts, Smith said. “There also seems to be a trend of more small companies forming joint ventures to prime opportunities. The joint ventures add capabilities and heft to the participating companies and help more companies land contracts.”

As federal departments prepared to close out their fiscal year in September, the DISA estimated that it was on track to pay more than $1.4 billion – 27 percent of its total contracting obligations – to small businesses in Fiscal 2021, said Carlen Capenos, Director of DISA’s Office of Small Business Programs.

DISA, like many other government agencies, is currently looking for ways to achieve President Joe Biden’s executive order, directing the federal government to increase contracting to small, disadvantaged businesses (SDB) by 50 percent over the next five years.

“Currently, there is no statutory authority to do set-asides for small, disadvantaged businesses [for prime contracts], so we are hoping to get some tools that allow us to set aside contracts to hit those targets,” Capenos said.

However, Capenos pointed out that DISA traditionally exceeds the statutory goal of 5% in the SDB category. In FY20, DISA achieved 11.8% and this year is currently achieving 13.2%.

Meanwhile, the contracting landscape is already being reshaped by other government initiatives and shifts in the number and size of contractors.

DISA contracts still attract ample competition, but “there are less contractors competing,” Capenos said.

In some cases, a merger or acquisition has reduced the total number of competitors or created a conflict that requires a company to withdraw from a contract competition. In other situations, the consolidation of government requirements into fewer but larger contracts is, by nature, reducing the number of companies that win government contracts.

Federal contracting still attracts a strong roster of small companies, but “we have seen overall across the entire defense industrial base a reduction in the number of small businesses that exist and that’s not good,” Capenos said. “It is concerning long term. If we don’t have a profitable, healthy, defense industrial base, it hurts everybody economically, but especially with innovation. Innovation is really driven by small businesses more so than large businesses. If we are losing that piece, we might be missing out on something that we need.”

Smith – who, along with his co-founders, launched his company after his former employer, Praxis Engineering, was acquired by CSRA, Inc. – believes the latest round of M&A activity could ultimately foster the establishment and growth of other small companies.

“Overall, I think this is helpful for small businesses. I don’t think any of the acquisitions create big, seismic shifts. I think they create slow, evolutionary changes in the contracting landscape that open up new opportunities for small businesses over time,” he said.

Leaders of the Maryland Innovation and Security Institute (MISI) believe a somewhat different approach to government procurement can help more small, innovative companies thrive while also improving the quality and speed of services provided to Fort Meade agencies and commands.

Some federal agencies have “a culture of over-classification which impedes innovation and the ability to pivot the way our adversaries do, which is fast,” said Armando Seay, Director of MISI’s DreamPort. General Paul Nakasone, Commander of U.S. Cyber Command, “is a visionary and gets the fact that small businesses who may not have all their clearances, can still contribute the bulk of their acumen to moving the mission forward without having to know what the classified mission is.”

Seay estimates that 65 to 78 percent of work on many projects for Fort Meade clients is unclassified or carries a very low classification level. By separating some of that unclassified work into separate contract awards, “we can accelerate the development of that unclassified work … and cut years and millions of dollars off projects,” he said.

That approach to contracting, he added, also helps small businesses overcome some of their biggest challenges – such as obtaining security clearances for individuals and facilities clearances, surviving 12-to-18-month lead times on large contract competitions, the cost of securing SCIF space, and the growing preference among workers to avoid working inside secure facilities.

DreamPort, Seay said, is already proving the business and mission potential of splitting classified and unclassified work. Through their work at DreamPort, multiple small businesses have accumulated a past-performance record with DISA, NSA, the Air Force and other agencies, and landed “door-opening” contracts of $500,000 to $1 million with Fort Meade clients. One company has secured as much as $12 million of work annually through its involvement with DreamPort. The contracting model is proving sufficiently popular that MISI this year launched its MindScape facility which supports mission technology innovation to key federal customers, and is currently contemplating a further 50,000 square foot expansion.