For a long time, Kim Nguyen has felt a growing pressure in the federal information technology marketplace, and there’s been no let-up.
Pragmatics Inc., where Nguyen is vice president of special programs, has developed into a successful, midsize IT company with annual revenues reaching $145 million. However, it’s stuck between two strong and growing forces in the marketplace: Small businesses and big corporations. He said he fears the effect on his business and other companies that are similar in size, which, experts say, is a key component of a well-balanced market. Nevertheless, experts also foresee little chance of change.
Pragmatics’ annual revenues have increased beyond the federal government’s $25 million revenue threshold for small businesses. At the same time, its revenues are nowhere near the annual revenue of the top IT corporations. In that position, he said he’s being pinched out.
“The government is best served by having a spectrum of business in the industrial base,” Nguyen said.
On one side, government officials are pushing agencies to break up large bundled contracts and award more individual contracts that are set aside solely for small business. Some policy-makers even have proposed boosting the overall federal small-business contracting goal from 23 percent to 30 percent.
In fiscal 2008, agencies spent $93.3 billion with small companies, an increase of nearly $10 billion since 2007. That dollar amount represented 21.5 percent of total contract spending that officials are driving agencies toward.
Meanwhile, the top 10 federal IT integrators gathered $71.3 billion in fiscal 2009, while the Top 100 IT companies received a total of $129.9 billion in prime contracts, according to Washington Technology’s 2010 Top 100 list. In fiscal 2008, the government awarded $119.6 billion in prime contracts to the Top 100 companies, $68.5 billion going to the top 10 companies, based on WT’s 2009 Top 100 list.
Looking more broadly, middle-tier companies received 44 percent of the total value of federal professional services contracts in 1995. By 2004, though, the midtier companies got only 29 percent of that value, according to a 2006 report from the Center for Strategic and International Studies.
Business executives and groups, such as the Professional Services Council, have talked to policy-makers and various congressional committees. Government officials have listened to the concerns, but nothing has happened.
In a statement, the Small Business Administration said it’s not an issue that falls under its jurisdiction.
Executives with midtier companies and their supporters have proposed reviewing the small-business size standard or expanding the North American Industrial Classification System code for IT services. Some have proposed that federal officials create a particular code specifically for government contracting because it’s a much different world than the private sector.
Executives know their situation, though.
“The chances of anything happening about this are very small and would take a lot of time,” even though it's a major concern, said Shiv Krishnan, president and CEO of Indus Corp.
Stan Soloway, president of the Professional Services Council, said that although new policies might not come, the government can do some smart, logical things to help the midtier companies thrive. He suggested that contracting officers keep a market perspective as they make awards. They need to understand how their decisions can have deep effects on the market.
For instance, task orders placed against multiple-award contracts can decrease opportunities for midtier companies, Soloway said. As agencies continue to turn to task orders, the largest companies tend to bid on more of them, while in the past, they would have been less likely to invest in them. Furthermore, agencies demand more from companies that want a place on a multiple-award contract. Agencies expect a lot of expertise in a wide range of areas. Midtier companies are expected to have the resources that the large companies have to compete, he said.
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