Policy Options to Improve Small Business Participation in the Industrial Base

Abstract

In 2023, officials from the Department of Defense stated that unless small business participation improves, "[w]e risk losing mission-critical domestic capabilities, innovation and strong supply chains” and that the Department must work, “to strengthen our small business supply chains, increase competition and attract new entrants.” However, analysis based on the Department's FY 2021 Industrial Capabilities Report to Congress suggests that small business utilization is not fully supporting the needs to the Department. To that end, it is worth examining the lessons learned from the Small Business Competitiveness Demonstration Program (Comp Demo), established by the Small Business Competitiveness Demonstration Program Act of 1988 (Comp Demo Act). Comp Demo attempted to realign small business spending from industries where small businesses were winning large shares of contracts to those where small businesses were underrepresented. This program was terminated by the Small Business Jobs Act of 2010, P.L.111–240. The Small Business Act requires that the government assure, “that a fair proportion of the total purchases and contracts for goods and services of the Government in each industry category” be awarded to small businesses (15 USC 644(a)). However, within the last 10 years, amendments have been made to the Small Business Act that allows the Small Business Administration (SBA) to create new size standards within or outside of the existing system of North American Industrial Classification System (NAICS) codes, “due to unique Federal buying patterns or requirements.” Additionally, the annual report on small business goals was amended to require that small business participation be tracked by NAICS. The SBA has not acted upon either. By examining the successes and failures of the Comp Demo program, and the opportunities created by the changes to the Small Business Act, the author expects to identify opportunities to provided targeted assistance to small businesses in underrepresented industries, specifically those businesses providing advanced and emerging technologies.