WASHINGTON–While the federal government’s set-aside program for small businesses is generating much economic success, experts say improvements to reduce fraud and to help mid-size companies remain competitive need to be made.
In discussing the findings of the study by the University of Maryland Center for Public Policy and Private Enterprise, one business owner said Thursday that the federal government needs to make sure small businesses succeed even after their government contracts end.
“Being an entrepreneur in one of the greatest nations on earth is the best feeling,” Deepak Hathiramani, founder and chairman of Vistronix, said at the National Press Club during a panel discussion. “However, incentives are misaligned with what reality is. How many businesses are sustained after graduating from the small business program?”
Hathiramani said he experienced this first-hand when his information technology company, which started as a small business, encountered painful setbacks when it reached the mid-tier level, and only later managed to reach large-tier status.
“When an agency awards a company a contract that’s several times the size of the company, it’s setting the company up for failure,” Hathiramani said.
The study offered suggestions to remedy this problem, including stricter contract criteria such as considering whether the company has enough qualified workers or immediate resources to get the work done.
The study also covered the issue of fraud in the set-aside program.
The set-aside programs typically operate on a “kind of corporate ‘honor system,’” the report said, in which the business owner simply certifies that he or she is a female or minority, rather than having to prove it. It is unclear how much fraud of this type occurs because few federal agencies have time to verify the applications and “policing of the system is left up to firms willing to file a complaint.”
“I have not seen any data that says that one sector or the other is worse than the other (with abuses),” said Stan Soloway, president and CEO of the Professional Services Council, an advocacy group for government contractors. “In terms of actual fraud, we know it exists, I just haven’t seen any data that shows how it exists.”
While suggestions for monitoring fraud and helping mid-tier businesses succeed are important highlights of the study, Jacques Gansler, panel moderator and one of the study’s authors, reminded the audience that innovation is still at the heart of small business contracting.
“Don’t forget that the objective here is innovation,” said Gansler, professor and Roger C. Lipitz Chair in Public Policy and Private Enterprise. “That’s not always easy in big companies, especially when it comes to disruptive innovation.”
Panelist Andrew Hunter, director of the Defense-Industrial Initiatives Group, a defense industry and national security contracting think tank agreed, and said the government needs to focus its contracting goals on innovation and solving problems like fraud and mid-tier failure.
“The government needs to be extremely focused on what their goals are,” Hunter said. “We’re going to get what we ask for, not necessarily what we want.”