Protecting Smaller Contractors

Protecting Smaller Contractors

Moran: Defense industry favors larger corporations when awarding contracts.

Buildings bearing names of large government contract companies are visible across the Northern Virginia skyline. Most of the area's population is aware that businesses such as Northrop Grumman or Raytheon secure large federal contracts, but there are also smaller businesses competing in one of the region's top-grossing industries.

"There has been so much consolidation in the defense industry that it is hard for small businesses to stay competitive," said U.S. Rep. Jim Moran (D-8) to members of the Fairfax County Chamber of Commerce on Thursday morning, Jan. 25. He said smaller contractors are a source of a lot of ideas, but only a few of those ideas get implemented, because, under the existing process, large companies are awarded most defense contracts. Government's preferential treatment of larger corporations when awarding defense contracts threatens to deplete that source of ideas in an industry that is very important to the region, he said. In Fairfax County alone, according to the Fairfax County Economic Development Authority, government contractors secured $12.8 billion in federal procurement in fiscal year 2004.

"[The government contracting industry] is what drives the economy [in Northern Virginia] that is parallel to none in the world," said Moran.

According to Moran, national interest is at stake with large corporations securing most money in federal contracts. "This is not in our interest. It's not in the interest of the military," said Moran. He added he wants to create a system that is fair to both large and small contractors. "I want to make sure good ideas don't get buried because of the consolidation of the industry," said Moran.

Sudhakar Shenoy, founder, chairman and CEO of Information Management Consultants, Inc. — a Reston-based government contractor — said much local talent could be lost if smaller contractors are not given a better chance at securing federal procurement.

Another problem, said Moran, is that large defense contractors tend to underestimate costs on projects, such as the building of weapons systems. After winning a contract, many of them go above the estimated cost, and that supplemental financial burden falls on the taxpayers' shoulders. "We could save billions of dollars by fixing the system," said Moran. In order to fix the system, he said, major abuses would have to be exposed.

BILL LECOS, president and CEO of the Fairfax County Chamber of Commerce, said protecting small contractors is important to the region's economy. "Obstacles need to be removed" in order for smaller contractors to thrive in the competitive industry, said Lecos. He alluded to a ruling in the Federal Appeals Court that does not allow smaller contractors — those registered under a small business tax category — to list state taxes as an allowable cost — a cost the contracts reimburse. Larger corporations, on the other hand, can list state taxes as an allowable cost.

Another way of helping small contractors stay competitive, said Lecos, is to support larger companies that act as mentors to the smaller companies. Lecos said that smaller contractors provide expertise on certain aspects of projects, and larger businesses often subcontract them. "The industry is built on collaboration and competition," said Lecos. One day, he said, two companies may be competing over a government contract, but the next day they might be working together on the same project as one firm subcontracts the other. He added that it was important to remember that small businesses in the government contracting industry turn over $150 million each year.

"[Protecting smaller contractors] is critical to the business community," said Stu Mendelsohn, chairman of Policy of the Fairfax County Chamber of Commerce. "If we can keep them competitive it will help everyone," he said.