In a recent article, government contracting specialist Stan Soloway, President and CEO of the Professional Services Council, said that “small business prime contracting in fiscal year 2011 dropped below 22% after several years of flirting with the 23% goal” established by the federal government. The government also missed its goals for women-owned businesses, service-disabled veteran-owned businesses and HUBZone businesses. Additionally, federal contractors failed to reach their goal of 35.9% of all subcontracts awarded to small businesses.
There are many theories as to why goals were unmet. One possibility is that, in this era of limited credit available to small business, contracting officers are not able to deem a small business as “financially responsible” as required under the Federal Acquisition Regulations (FAR). If a company is not financially responsible, they cannot be awarded a prime contract, and large prime contractors are reluctant to award subcontracts for the same reason.
A former senior procurement official for a Cabinet-level agency indicated that the FAR financial responsibility requirement is being given a lot more attention than in the past, a view also held by many long-time accounting and banking professionals in the government contracting space.
So what should a small business do? Experts are advising small businesses to address financial responsibility during the bid process and not wait for the government to request financial information. Financial statements are useful, but one of the most effective tools is to get your bank or finance company to provide a commitment letter for at least 90 days worth of billings. So, if the contract is for $1 million/month, a commitment letter for $3 million should suffice. This also applies to small businesses that are planning on participating as a teaming partner with a large prime contractor
Scott F. Denniston
National Veteran Small Business Coalition (NVSBC)
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