In an under-the-radar change, federal agencies are now working under agency-specific goals to award contracts to Small Disadvantaged Businesses (SDBs), with a governmentwide goal of awarding at least 15% of federal contract dollars to SDBs by 2025.
Under federal statute, the President is to establish annual governmentwide goals for small businesses, SDBs, and several other socioeconomic categories. Specifically, the Small Business Act states:
Establishment.—The President shall annually establish Governmentwide goals for procurement contracts awarded to small business concerns, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women in accordance with the following . . ..
In other words, contrary to a common misconception in the government contracting community, the statutory goals for small businesses, SDBs, WOSBs, HUBZones, and SDVOSBs aren’t set in stone. Instead, the law sets floors but allows the President to unilaterally adjust the goals upward.
Despite this authority, the annual governmentwide goals have long been set at the statutory floors. For many years, the governmentwide goal for SDBs has been the same as the floor–just five percent. Additionally, when the SBA negotiated individualized small business goals with agencies, the SBA gave each agency the same five percent goal.
In June 2021, the President announced an increase in the SDB goal. The new target: 15%, to be reached by the Fiscal Year 2025. In December 2021, the Office of Management and Budget issued a memorandum to agencies regarding the implementation of the President’s 15% SDB goal. The memorandum states, in part:
To meet the President’s 15% goal by FY 2025, agencies and SBA shall negotiate interim SDB contracting goals for FY 2022. These interim goals shall demonstrate improvement at each agency. Taken together across the Government, these goals shall result in the award of 11% of total eligible contract spending to SDBs.
Thanks to the memorandum, agencies are no longer operating under a one-size-fits-all 5% SDB goal. Instead, the SBA has negotiated individualized SDB goals with each agency, just as it does for each agency’s overall small business goal. The changes are striking.
For example, instead of the Fiscal Year 2021’s 5% SDB goal, the Department of Defense is now working under a 9.5% goal. The Department of Homeland Security’s SDB goal has more than tripled to 17%. Several agencies, including the General Services Administration, are now operating under SDB goals above 20%. And the SBA itself has seen the biggest change, adopting a whopping 55% SDB goal for FY 2022.
As ambitious as these goals are, some–and perhaps many–of them will likely increase again in FY 2023. After all, these are mere “interim” goals, intended to attain a governmentwide 11% rate for the current fiscal year. The push to the 2025 governmentwide goal of 15% will continue in the new fiscal year, likely resulting in even higher agency-by-agency goals in FY 2023.
If adopting individualized SDB goals proves to be a successful strategy for increasing SDB achievement from its current levels (10.54% in FY 2020) to 15%, I expect the Administration to hear calls to use a similar approach to increase achievement for the other major socioeconomic programs. At present, the SBA does not negotiate individualized agency goals for women-owned small businesses, service-disabled veteran-owned small businesses, or businesses certified in the Historically Underutilized Business Zone (HUBZone) program. Instead, every agency operates under a 5% WOSB goal and 3% SDVOSB and HUBZone goals (again, the same as the statutory floors).
For many agencies, some of these goals are so disconnected from the agencies’ actual achievement as to be essentially meaningless. For instance, the VA operates under a 3% SDVOSB goal but awarded more than 20% of prime contracting dollars to SDVOSBs in FY 2020. Likewise, the Department of Agriculture operates under the one-size-fits-all 5% WOSB goal, but its FY 2020 WOSB achievement was more than 10%. In my view, there’s a strong argument to be made that these agencies should be operating under individualized goals that better incentivize them to build upon their current achievements.
But first things first: will the individualized FY 2022 SDB goals be effective in boosting agencies’ SDB achievement? We should have some initial answers soon. The SBA typically releases its annual procurement scorecards in the summer, so keep your eyes peeled for the FY 2021 report.
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