The Rise of the “Large Business by Proxy” Competition

More and more small business GWACs and IDIQs are becoming "large business by proxy" competitions - leaving non-JV small businesses (or those that have anything short of the most idealized JV relationships with the most competitive large partners) out in the dark. Don't get me wrong - as a perpetual competitor who is constantly looking for innovative ways to differentiate and win bids (#fullsteamahead), this has been a fun challenge to solve... but is it really the best thing for small business?

“Give me the Background on JVs”

JVs have been around for a while now, with SBA creating lenient affiliation rules for them back in 2016! As contracts continued to consolidate and get larger the thought was that supporting and enabling JVs would allow SBs to be more competitive for theses larger deals.?Specifically, the major thinking behind a Joint-Venture is that it:

1.???reduces risk for the small business compared to entering the market alone;

2.???helps fill in resource gaps (namely: capability, property, financial means, skill or knowledge) that, if competing alone, would impair competitiveness;

3.???enhances small business’ ability to meet evaluation criteria and capability factors – particularly as it relates to past performance or corporate experience factors; and

4.???provides the government an avenue to meet small business contracting goals.

Sounds good, right??These are all geared towards enabling small businesses to compete for more work and giving Government agencies credit for awarding to them.?That (on the surface anyway) sounds like it should solve the problem of dwindling small business utilization.

So then why is it that despite all of this effort, President Biden still recently had to sign the PRICE Act which, amongst other things, establishes a council to figure out how to increase the government’s utilization of small businesses?

Here are the numbers according to USASpending.gov, SBA.gov, and some quick math (in red):

?“So clearly JVs work – the total SB obligations have gone up!”

Well… by that metric – sure. ?While it’s hard to say for sure if there are real trends on this small data set, there do seem to be some metrics that might disagree with that sentiment:

1. The number of distinct small businesses that exist today is 2.7% less than 2 years ago – and even less if you subtract out the SBA MPP-JVs.
2. The percentage of obligated dollars going to SBs is hanging pretty steadily in the 23-26% range - not exactly leaps and bounds of improvement.
3. The total number of SB Prime Contractor awards is going down consistently year over year and as of 2020 was 10.6% lower than it was in 2017
4. The average size of each SB Prime Award is increasing – going up by 12% from 2017 to 2020 – potentially indicating additional barriers to entry for non-MPP-JV small businesses
5. The rate at which SBs are trying to establish MPPs with LBs is growing – perhaps indicating an increased reliance on MPP-JVs to compete for work.

?“The number of MPPs compared to the number of SBs is tiny – no way it’s having that significant of an impact on competition!”

True - it is a very small fraction of the total number of SBs out there…?But the actual impact on the competitive landscape may be larger than you think! Let’s limit the MPPs to only IT Services NAICS and use two easy but highly relevant examples:

• If NITAAC sticks to the targeted 345 SB awardees on CIO-SP4, there was likely about 1 MPP JV competing for every slot available.
• If GSA sticks to the targeted 310 SB awardees on Polaris and the MPP growth rate continues, there is likely to be 1 to 1.5 MPP JVs competing for every slot available.

As more JVs come to the table on these large IDIQs, the odds of a non-JV winning a slot (which are specifically structured to be evaluated by scoring points for checking specific boxes as opposed to adjectivally rated) is less and less likely since it is unlikely they will be able to score as many points as a JV with a LB partner could.?Further, if we expand the JV-to-available-slot analysis to smaller award pools on SB IDIQs and BPAs where the government wants more on the scale of 2-10 awardees, you can see how contracting vehicles and avenues to reach small businesses who aren’t “backed” by LBs are going to become increasingly hard to find.

“Surely there are still many options to get to non-JV small businesses?”

We continue to double-down on the JV model by clarifying and changing rules to further deny SBs and Government Agencies “true” SB contracting vehicles.?For example, originally there was a “three in two” rule. Summarizing a bit for brevity, under this rule a JV could only win three “contracts” or exist for two years after your first win – whichever came first.?This was later clarified to say that you could no longer *submit* new contract bids once you had already won three.?That of course resulted in mad scrambles to submit as many contract bids as possible so that if you won three you still had many that were “already submitted” that you could be awarded.?Quickly industry got smart and realized they needed to maximize the value of the handful of deals they would have the time to bid.?Namely, they needed to bid a combination of their recompetes (where they had high pWin) and IDIQs which a JV could hold and compete on for the life of the IDIQ because they issue “call orders” or “task orders” as opposed to “contracts”.

However, even with the “submission” clarification the rules at that time left avenues for the government to access “true” SBs, for example the GSA IT70 Schedule.?As opposed to IDIQs, IT70 was an avenue to win “contracts” which meant you didn’t often see JVs with various SINs competing for deals on the Schedule – the juice wasn’t worth the squeeze compared to another IDIQ.?For the same reason it was somewhat rare to see a JV waste a win on a contract small enough for the SB partner to bid on their own, creating an artificial dollar threshold that protected “true” small business and gave them their own stratosphere of competition.

Cue the “2 year” rule change.?Fairly recently the SBA changed the rules to allow JVs to bid and win as many contracts as they could in a two year period.?Since then, we’ve seen many of the previous “safe havens” for non-JV SBs vanishing into thin air.?The GSA Schedule now has JVs holding SINs and SB JV partners are leveraging their JVs to go after smaller deals that they wouldn’t normally need their large partners qualifications to bid because being able to leverage their LB partner’s qualifications (from certs to past performance) increases their competitiveness and makes it easier to win!

“But LBs won’t waste their time and spend B&P on what they view to be tiny deals, right?”

While you’d like to believe LBs wouldn’t waste time and B&P resources on these smaller deals, the truth is they don’t have to spend almost any resources on them anymore – the SB JV partner can run with it since they already have writeups on their joint staffing / management processes or the LB’s past performances / certifications / quality processes from the other deals they bid together.?It’s a low effort, high(er) pWin for the LB, and has no impact on the future work they can go after with the JV – so why wouldn’t they go along for the ride?

Also, let’s not forget there are different types of LBs.?As we’ve seen continued consolidation of large businesses in the industry, there has been clear stratification of the true “large LBs” and the smaller “mid-size LBs” – both competitively and revenue-wise.?Having spent time in both types of these organizations, I can tell you the way these groups compete for business is vastly different – from the type and amount of work they target, to the investments they make in capturing and proposing it.

More importantly – if the only thing left for true small businesses to bid are very, very small deals… how can they be expected to ever grow without a JV?

“What’s the solution, then?”

It’s hard to say what the perfect answer is – and their may not be one.?Anecdotally, I’ve heard more complaints about the dependence on JVs than praise, but I also have first-hand experience with some largely successful ones. ?I’m torn. ?I do believe JVs have a place in the Federal marketplace – the question is where? We could debate that all day, but one thing I remain steadfast on is leaving avenues for SBs to grow without having to compete against large businesses…?In fact, as I was writing this article SB and WOSB RFQs for Polaris were released… and the first pre-award protest for violation of SBA regulations has been submitted by BD Squared.

A JV-only track? A number of awards set aside for non-JVs? It seems there are several easy solutions from the view of someone who is neither an acquisition nor FAR expert.

All that said, this started with SBA resources, so let me end there.?As it relates to Matthew Schoonover's article, decreasing the competitive reliance on Mentor Protege Joint Venture for bids would potentially free up SBA resources to focus on other things! In the last full year there were 341 approvals – which is nearly one and a half MPP approvals per business day.?The approval of all these agreements, let alone the annual checks and constant monitoring of them represents an entire backlog of work that could be swiftly chopped down to size.