Increasing Obligations to a Shrinking DIB
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Curiously, the Department of Defense’s contract obligations to small businesses grew from FY2011-2020 but the number of small businesses in the Defense Industrial Base (DIB) Shrunk by nearly half.
In a recent report published by GAO it was revealed that the DIB has been rapidly shrinking in numbers since at least 2011. According to their numbers there were 42,723 small businesses in the DIB in 2011 down to 24,296 in 2020. So how does the inverse relationship work when the obligations going to small businesses went from $70B in 2011 to over $80B in 2020? It’s clear to those small businesses remaining in the industry that there are a higher number of obligations going to a lower number of businesses.
In 2019 the DoD published its Small Business Strategy to encourage and facilitate contracting opportunities for small businesses. However, instead of an efficient, effective, and unified approach to implementing the strategy it has essentially turned into a smattering of unmonitored innovation hubs, acceleration stations, and requirements rodeos across the services. If it has appeared from an industry position that the DoD’s implementation of a small business strategy was uncoordinated at best… that’s because it is uncoordinated.
In the same report by GAO, it was highlighted that the DoD lacks plans, policies, or processes to effectively implement, monitor, measure, and continuously improve a small business strategy. Upon release of the strategy in 2019 each branch of the services quickly stood up their own tech entry programs resulting in a flurry of efforts to attract the best tech available in the commercial market. The NavalX TechBridges, AFWERX, AFVentures, & AFRL, Army Accelerators and Federally Funded R&D labs (just to name a few) were all quick to establish alluring small business entry programs.
Ideally these efforts would lower barriers to entry for small businesses, increase the rate of tech transition, and make defense and dual use technology available for anyone in the DoD to acquire. But in true governmental fashion instead of collaborating to distribute technology across the Defense Enterprise these units compete by setting differing expectations for small businesses interested in working with them.
This is not to say these efforts are unproductive or failing to increase the flow of technology into the DoD. Now is arguably as good a time as ever to become a government contractor. These changes are a sign of hope for many small businesses seeking to do business with the DoD. For those who look in the right places there are real opportunities for growth.
“For example, DOD’s Defense Innovation Unit (DIU) aims to accelerate the military’s adoption of innovative commercial technology. Officials told us DIU uses other transaction agreements to make awards more quickly and reduce burdensome FAR contracting requirements, allowing DIU to attract nontraditional defense contractors and keep pace with technological changes. As of 2020, 77 percent of DIU awardees were small businesses. Officials said DIU receives many proposals from small businesses because the requirements to work with DIU are not burdensome.”
DIU is one unit increasing the use of flexible acquisition methods such as Other Transaction Authority (OTA). Often less talked about are individually awarded OT agreements. These are awarded to small or large businesses individually (as opposed to via a consortium). In a February 2020 article by Jon Harper in National Defense Magazine, Director of Strategic Engagement for DIU Mike Madsen said at the time
“The Defense Innovation Unit has awarded about 150 contracts to 122 nontraditional vendors. Of those, 66 are first-time suppliers to the military.”
A year later DIU was still leading the way in DoD innovation. Their 2020 annual report revealed that in the past 5 years DIU has leveraged more than $11 billion in private investment. In 2020 alone DIU initiated 23 new projects (a 35% year over year increase), received a total of 944 commercial proposals, and saw an increase in the number of proposals by 52% compared with 2019. This is what industry wants to see across the DoD.
After speaking with a representative from National Security Innovation Network at an October 14, 2021 industry day hosted by the Pacific Northwest Defense Coalition (PNDC) I learned that the number of individually awarded OT contracts has nearly doubled and is closer to 250.
It seems commercial sector common sense is hitting some areas of the DoD like DIU that seems to be finding success in sustaining a small business supply chain and adopting innovation. But hodge-podge disparate systems won’t win the great power competition and it’s not an effective approach to growing the small business defense base. To stay ahead, DoD will have to integrate the lessons learned from DIU and successfully implement, communicate, and monitor a unified management approach for its small business strategy. Currently the lower number of small businesses in the DIB is an opportunity for new entrants to grab a piece of a bigger federal pie. More obligations are up for grabs for those who seek to capture them! As the DoD becomes a more attractive business partner, small and non-traditional businesses will see opportunities for growth in the federal market continue to expand.
Resources:
GAO Report: Small Business Contracting October 2021 https://www.gao.gov/assets/gao-22-104621.pdf
National Defense Magazine: https://www.nationaldefensemagazine.org/articles/2020/2/11/defense-innovation-unit-shifts-into-higher-gear
