Examining the effects of set aside policies on competition and growth for small and mid-sized suppliers
Abstract
Mid-sized suppliers are arguably at a disadvantage in federal procurement. Small businesses benefit from set asides and other programs offered by the U.S. Small Business Administration. Alternatively, large companies have internal capacity, scale, and extensive past performance history to compete in the public procurement market bringing financial, personnel and political resources to bear to win and execute contracts. Mid-sized suppliers are essentially left out – they are too big to qualify for set asides, yet do not have parity with large firms against whom they are competing for procurements. However, there is a dearth of empirical evidence on the both the structural barriers that exist for mid-sized suppliers and the effects of their competitive disadvantage. In the absence of empirical study, notions and rhetoric prevail. This study can help to clarify these claims. This study examines whether mid-sized suppliers are indeed disadvantaged in public procurement, particularly those firms at the lower revenue thresholds of the middle market. We suspect that there are unique drivers for firms that emerge into the middle market because the incentives are so strong to remain a small business, even if that means stymied growth. We examine small businesses that successfully transition to the middle market to identify the strategies they pursue to overcome the “benefit cliff” they encounter as they grow. We also assess the implications of this disparity for mid-sized suppliers, the federal procurement market, and the U.S. economy. In this research, we follow 1,000 randomly selected federal suppliers over a 10-year period (FY2005-FY2014). By tracking firm performance over time, we can analyze firm attributes to determine the factors that contribute to (or hinder) growth and rise into the middle market. We interview suppliers to determine their strategies for success (as they define it, either growth into the middle market or stunted growth to remain a small business). We also interview federal government officials to obtain their perspectives on the small business set aside program and perceived benefit cliff for mid-sized suppliers. As there is little direct empirical evidence to draw upon in crafting the study, we develop and test hypotheses and establish an agenda for future research in this exploratory study. We also provide practical policy recommendations to guide policy makers and public procurement professionals. The results of the study will provide empirical evidence to support or refute claims that the middle market is uniquely disadvantaged in public procurement, and the extent of this phenomenon. The findings are promising for informing the drivers of growth for small and midsized suppliers, and the strategies that enable successful firm development. The results also have implications for policy makers – if mid-sized suppliers are unable to compete in the federal procurement market, then agencies are likely missing critical opportunities to secure best-value through purchasing, and impede economic growth.
Document Details
- Document Type
- DoD Grant Award
- Publication Date
- Sep 21, 2016
- Source ID
- N002441610049
Entities
People
- Trevor Brown
Organizations
- Office of the Secretary of Defense
- Ohio State University