Redefining contract competition rules

Bloomberg Government tells us that the SBA will soon redefine “small business” and increase the number of eligible competitors for certain contracts:

The Small Business Administration is simply redefining “small business,” a move that means that 900,000 small businesses will increase to more than 918,000 in a few days. The bad news for the existing small businesses is that they’ll face fiercer competition for the portion of $533 billion in annual federal contracts set aside for the little guys, according to a Bloomberg Government report by BGov Analyst Rich Stein. They already compete with the Goliaths of federal contracting. Agencies set some contract money aside to encourage new business formation, job growth and competition. More companies will be eligible to compete for that small-business money after Oct. 24.

The SBA’s first redefinition of small business since the 1980s will initially apply to real estate and leasing companies, educational services and health-care businesses. The agency will consider in November expanding the definition’s reach to financial services, management, and agricultural and fishing industries.

Small technology companies so far have received a reprieve. The coming changes are much more sweeping than one the SBA rejected earlier this year, when it considered and then dropped a rule that would have added 500 companies to the list of those eligible for small-business contracts.

How firms think about sequestration

From Bloomberg, a glimpse at a (gated) “how to” guide for preparing for sequestration:

  • Many companies would face a steady decline in new opportunities, rather than a precipitous drop.
  • The Pentagon may find it more difficult to apply across-the-board cuts to all programs rather than make larger reductions to fewer programs. It may be prudent for the Pentagon to delay signing contracts that would require spending funds that may be sequestered.
  • Most companies will have to respond to sequestration by Oct. 1, if not sooner, by taking actions such as reducing workforces or cutting back on capital expenditures. Federal fiscal year 2013 begins on that date, and contract revenue may drop then if the Office of Management and Budget holds back funds in anticipation of sequestration.
  • Small prime contractors and subcontractors may not have enough cash or credit to sustain operations in the hope that sequestration will be reversed or halted.
  • How subcontractors respond will depend largely on what prime contractors do. The further removed a subcontractor is from the government customer, the fewer choices it may have.
  • Companies can limit exposure to sequestration by getting fiscal 2013 and prior years’ funds on contract, exempting them from sequester.
  • The Pentagon may add contract contingencies to deal with the uncertainty of sequestration.

This is a firm-level view of contract failure.

5 GAO Reports on Contracting

If you’re doing work on contracting, or planning on teaching contracting in an upcoming course, here are 5 useful GAO reports:

Organizations as incomplete contracts

… when the firm purchases labor, in a world of incomplete contracts it gains a property right only to an ill-defined and highly variable amount of labor power embodied in a human being.

This is John R. Commons’ “managerial transaction”, one of the key reasons firms work. Effectively, firms rely on the fact that contracts are incomplete in order to outperform markets.

The same is true for public sector organizations: incomplete contracts – the ability to tell someone to do something that isn’t in their wage-labor agreement (and that they’ll likely do it) – is why organizations can outperform spot labor markets.