Procurement Reform and “Small Business”

In 2013, after years of good behavior on the General Laws Committee, I was awarded a seat on the Procurement Reform Commission, which has the unenviable task of overhauling Virginia’s procurement laws.

That means long days in Richmond comparing the benefits of “competitive sealed bidding” vs. “competitive negotiation.”  (The former relates to supply contracts involving generic goods — the latter usually refers to services which require unique skills).  Exciting stuff.

Today, we reviewed about twenty pieces of legislation which had been referred to the Commission.  The most explosive, no surprise, were those bills dealing with contracts awarded to “SWaM,” or small, woman-owned or minority businesses.

Virginia has a pretty paltry history on awarding SWaM contracts.  While it’s tough to compare “apples to apples,” it is apparent that less than 5% of our prime contracts let to private businesses go to minority-owned businesses. Here’s a link to a 2010 disparity study which looked specifically at how various agencies performed.

(ed. note:  it’s worth noting that the percentage numbers are somewhat skewed by the awarding of contracts to publicly-owned businesses which don’t fit any category.  It would have been useful for the study to factor that in).

Every Governor in my experience has made it a point to improve minority contracting in Virginia.  But nobody seems to be happy.  Today, however, I think our Commission took a step in the right direction by acknowledging a major problem — the definition of “small” business under the Virginia Code.

Under Virginia law, a “small business” is defined as a business which has fewer than 250 employees or less than $10 million in gross receipts.  In other words, pretty much every business in Virginia qualifies.  As a result, Virginia businesses which compete for “SWaM” status get little, if any, benefit.  Or Virginia businesses are outbid by out-of-state businesses who become “SWaM” certified, even if they’re doing billions in revenue, because they classify their work force as consultants or contractors.

As a result, Virginia gets little benefit from its “small business” and “supplier diversity” programs, which are meant to increase revenues (and hiring) in Virginia communities that need the work.

In 2014, Delegate Alfonso Lopez (D-Arlington) had legislation which simply changed “or” to “and” in the SWaM definition so that a business has to qualify for both thresholds.  While an innocuous change, it makes a major difference.  Among other things, it would eliminate companies with more than 250 employees or $10 million in revenue from consideration. Neither of them have any business in being classified as a “small” business.

The Commission spent nearly an hour today on the Lopez bill, which garnered a lot of audience support.  Eventually, we recommended passing it on a nearly-unanimous and bipartisan vote.  The issue will next be taken up by the Assembly in January.

While it’s not a guaranty to pass before the full Assembly, it’s important to get the Commission’s imprimatur.  There is a lot of work to do to open up Virginia’s procurement system.  The first step is to define “small business” in a way that actually reflects reality.

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