NCPA - National Center for Policy Analysis

Small Business Contracting

March 25, 2011

Congress has tasked the Small Business Administration (SBA) with monitoring federal agencies to ensure they are meeting small business contracting targets.  Is it working?  That depends.  If the goal is to help historically disadvantaged groups get more federal funds, the answer is yes.  But if the goal is to encourage federal bureaucracies to give their contracting dollars to small rather than large businesses, the answer is no, says Scott Shane, professor of entrepreneurial studies at Case Western Reserve University.

  • In 2009, small companies tapped $96.8 billion in federal contracting funds, compared to $82.4 billion (in 2009 dollars) in 2005.
  • This increase is deceptive, however, because federal contracting has risen the past five years.
  • In fact, small business has been losing market share --from 2005 to 2009, small business's portion of prime contracting dollars dropped either 1.5 or 3.5 percentage points.
  • In 2009, the small business slice of what the feds spent on contractors was 21.9 percent -- below the target of 23 percent Congress set in 1996.

In contrast to the overall decline in small business's share of federal contracting dollars, the share going to small businesses owned by socially disadvantaged individuals has risen.  This is reflected in the rise of contracting dollars allocated under specific programs.  For example, the share of contracting dollars going to businesses operating under the Historically Underutilized Business Zones program for qualified small businesses operating in disadvantaged communities increased from 1.9 to 2.8 percent, says Shane.

In short, while small business has seen an overall decline in its share of federal contracting dollars, the slice going to businesses owned by women and members of socially disadvantaged groups has increased.  These numbers indicate that the main group experiencing a decline in its share of federal contracting dollars over the past five years must have been white, male small business owners.

Source: Scott Shane, "Are Federal Policies Toward Small Business Contracting Succeeding?" The American, March 22, 2011.

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