After a tumultuous election, we need to take a closer look at President-Elect Joe Biden’s proposed economic plan that would cost an estimated $5.6 trillion, with a heavy focus on spending related to infrastructure, clean-energy projects, and federal R&D. He has done his best to explain various aspects of this plan to the American electorate during the presidential debates and over the course of his campaign. However, buried deep within his agenda is a proposal that’s gone mostly unnoticed, but one that could have massive implications for small, disadvantaged businesses seeking public sector revenue.
Among other initiatives aimed at stimulating economic growth within minority communities, Biden has proposed tripling agency spending on goods and services procured from small businesses owned by racial minorities. Currently, the government aims to award at least 5% of all federal contracting dollars to small, disadvantaged businesses as part of the SBA’s 8(a) Business Development program. If enacted, his proposal would move the target to 15% by 2025.
There are countless variables that will impact whether or not this proposal (or any other) comes to fruition, but if it does, it would be nothing short of a gamechanger for business leaders who qualify for 8(a) certification.
Hitting a Wall
In fiscal year 2014, the percentage of government spending with 8(a) firms in relation to overall spending peaked at around 6.11%. For a variety of reasons, that number has steadily declined, though in the last fiscal year 8(a) businesses still received a record $30.39 billion in government contracts (good for about 5.15% of total federal spend).
It’s hard to achieve sustained success in the public sector, no matter what kind of business you’re running. Over the past four years, spending has been funneled through fewer agencies, creating even more obstacles for smaller firms hoping to expand their public sector portfolios.
Competition among 8(a) firms is especially fierce, a reality that many business owners seeking certification fail to consider. Among the roughly 8,000 8(a) small businesses that received assistance from SBA specialists during FY19, fewer than half were awarded federal contracts. On the other hand, the program’s relative obscurity and lengthy application process prevent many eligible business owners from even applying in the first place.
That said, if you’re an entrepreneur or business owner eligible for 8(a) certification, any real or perceived barriers to participating in the program will be dwarfed by the opportunities 8(a) certification will present.
Big Advantages for Small, Disadvantaged Businesses
The fact that the public sector market for small, disadvantaged businesses could triple in size (virtually overnight) should get the attention of any opportunistic entrepreneur. However, that dramatic growth isn’t the only reason Biden’s win makes this market worth jumping into.
After President Barack Obama took office in 2009, he and Vice President Biden oversaw a government-spending program that spread funds fairly evenly across federal agencies. That administration also created numerous project-based opportunities for contractors through the American Recovery and Reinvestment Act (ARRA), a stimulus plan designed to help revive the economy after the Great Recession. Unlike President Trump, who aims to redirect even more spending to defense and homeland security under his proposed budget for FY21, Biden’s plan calls for an increased focus on a wide variety of domestic initiatives that would create opportunities for a much broader spectrum of government-supporting businesses.
An increase in the breadth and volume of opportunities for existing 8(a) firms could speed up the typical 8(a) program lifecycle substantially. Presently, 8(a) certification lasts for nine years, and that’s not likely to change. During this time, participating firms must limit the total dollar value of sole-source contracts they receive to either $100 million or five times the value of their primary NAICS code. With more opportunities for growth, it’s logical to assume that more successful 8(a) companies will “size out” of the program faster, creating a void that must be filled by new businesses.
Moreover, new 8(a) firms could find it easier than ever to gain a foothold in the public sector thanks to another Biden proposal. In addition to calling for more formula-based awards, more transparent monitoring of contract awards, and more outreach and counseling for small business contractors, he’s seeking to establish a first-of-its-kind Federal Procurement Center. The sole purpose of this program would be to help minority-owned firms apply for and win government contracts, giving 8(a)s an unprecedented assistance vehicle over the next four years. That support is on top of the numerous benefits companies are already eligible to receive under the 8(a) Business Development program, and it all adds up to an ideal situation for qualified business owners thinking about entering the federal space.
The Bottom Line
Now that Biden has won the presidency, it’s still largely unclear how the country will pay for his proposed economic agenda. It’s also unclear how much political resistance he’ll face in implementing his economic and infrastructure agenda since there is a runoff for two Senate races in Georgia that could determine whether the Democrats or Republicans control the Senate. One thing, however, is clear: if you’re a minority entrepreneur or someone who’s currently leading an 8(a) business, you should be paying close attention to SBA announcements, because massive opportunities could be coming your way soon.
Tommy Benz is a principal of 8(a)Strategies, a firm that specializes in working with 8(a) companies to grow their business in the federal market. For more information, visit www.8astrategies.com or email email@example.com