It's been a very interesting past few months for the Small Business Administration. After a high-profile article was released by the New York Times on June 12th highlighting the state of the Agency's lending and small-business-support goals in the wake of Steven C. Preston's departure, the SBA has experienced heightened scrutiny of its practices. The most notable talking points, as outlined in the article, are the waning flow of SBA loans, the shortfall in meeting woman-owned business goals, and the much-criticized reality of large businesses receiving contracts that are earmarked for small businesses.

The SBA maintains that it is an Agency in transformation. Jovita Carranza, the Acting Administrator of the SBA, stated in his subsequent Letter to the Editor that the Times' article was "stunning in its omission of letters and proclamations of support for the agency's turnaround from industry groups and legislators."

Indeed, it does seem that a turnaround is taking place, and that major changes are not far afield at the SBA. This seachange is reflected in the increased, self-administered scrutiny in reporting that the contracting community is witnessing at the SBA.

In a preliminary assessment of SBA's 2007 numbers, which will be released in August, Kent Hoover, the Washington Bureau Chief at Bizjournals.com, says that the Agency will not be meeting its goal of 23% allocation of government procurement dollars to small businesses (SB). However, at the same time, some interesting figures jump out:

• $436 billion in total prime contracts (more money than 2006)
• SB prime contract dollars decreased to 22.1% from 22.8% in 2006
• $1 out of every $3 went to DC metro area firms

This downtick was likely attributable to the fact that small business acquired by large businesses no longer counted toward Agencies' small business goals. Additionally, for the first time ever this year, Agencies were required to certify the accuracy of their contracting data: in theory, this means fewer size standard and codification errors, and more transparency surrounding small business contracting processes, which will hopefully allow small businesses targeting government business to breathe a sigh of relief and rest assured that their concerns are being addressed.

Although all the back and forth between critics and the SBA has done much to increase scrutiny of the numbers, the actual reality of small business concerns in the contracting world remains relatively static. Relationships still matter, quite a bit, and although this has never been a surprise in the contracting arena, it is surprising to just what degree such increased access still informs government procurement. With so many new programs of such a high profile at stake:

• PACTS, the $1.5 billion DHS vehicle which touts support-service set-asides for Service-Disabled, Veteran-Owned businesses
• Army's ITS-SB , which sets aside $400 million of its IT Services contracts for small businesses
• 8 NETCENTS II small business set-aside programs – Air Force will spend a portion of the $10 billion ceiling for contracts involving SOA Enterprise, Software Services, Infrastructure and Support Engineering

It's very important that the SBA and the contracting community work together, reconcile differences and stave off post-award outcry, which only creates further hindrances and expense to the procurement process.

Perhaps the best way to move forward is to assimilate the input of small businesses themselves, to ensure visibility and support for all policies; it seems as though increased oversight in this direction, however slowly, provides targeted growth and greater opportunities. One thing is for sure - there is always progress to be made.

INPUT welcomes the feedback of its members. Are you sensing a change on the horizon for small business concerns, and the government's commitment to meeting its goals? Or are we just conducting business as usual?

What is the average federal win rate? Sometimes the question is posed as "What is the win rate for recompetes?" or "What is the average win rate for task orders?".

More demand for win rate benchmarks

We are hearing these questions more and more from our Members. Three years ago we got questions about win rates once a month, and today we are asked the question almost every day.

Not only is the frequency changing, but also who is asking. A few years ago the companies interested in win rate statistics were generally larger integrators managing large bid portfolios and big bid and proposal (B&P) budgets. Now the question comes from companies of all sizes - some well below the $50 million mark, both subcontractors and primes, product and services vendors, both new to market and entrenched players.

Why the increased demand for win rate statistics? Take your pick: more competitive market, tighter budgets, more sophisticated vendors. These factors will put more demand on more productive B&P dollars.

30% Win Rate: Industry average

In FY07, competed federal technology spending with more than one bidder had an average win rate of 30%. An average win rate of about 1/3 makes mathematical common sense given a minimum three vendors are needed for a competitive bid and the average number of bidders for competitive competitions approaches three.

70% Win Rate: Recompetes and task orders

The average win rate in FY07 for all spending regardless of the type of work or number of bidders was 65%. The higher average includes a lot of spending with only one bidder (email me at ahiggs at input dot com if you would like the list of contracts with only one bidder). Anecdotal feedback from business development directors say that pure new business is acceptable with a 30% win rate, and the win rate for recompetes and some task orders should be around 70%.

10% Win rate: Something is definitely wrong; how to fix it

In a conversation last year with a recently installed VP of Sales and Marketing at one mid-sized integrator, I heard a common success story. The VP told me the company averaged an "absurd" 7% win rate until several months prior when they changed their bid practices and now achieved win rates in the mid-30s. The change in bid practices included more effective decision gates in the proposal process to decrease the instances of "we just have to bid" and a final gate just before proposal submission where the predicted win rate had to be at least 50% or it was a no-bid.

B&P Spending Rule of Thumb

Best practices dictate that B&P spending should average 1% to 3% of expected contract value. Like the 1% to 3% rule of thumb for B&P spend, the average federal win rate varies depending on who you talk to and what type of bids. Under a win rate of 15% and a vendor is not spending its B&P money wisely and has a capture process to fix, or does not have competitive solutions. Company average of 35% to 50% has been said to be optimal. Over 66% and maybe the company is bidding too conservatively, operating in a unique market, or is at the top of the game.

DC has a lot of great things – rich history, museums, and the new Nationals ballpark; the other thing DC has, besides traffic, is many government contracting firms. Trust me, we should know. If the federal government is your market, being close to the market makes perfect sense. However, should it be criteria for success? Certainly not. According to a new AP report, "Companies within 50 miles of the White House earn nearly $1 of every $3 in federal contracts given to small firms." Apparently, USAID in a recent RFP went so far as to mandate that the proposing firms be within 50 miles of DC, which seems like an arbitrary limitation of the market. But is it that surprising that being close to the majority of customers results in greater success?

As always, it's who you know

This story underscores the importance of understanding the contracting environment. Like most businesses, government contracting remains a relationship business where knowing the customer and the customer's business remain paramount. What's more, being located in the DC metro area also provides easier access to all-important teaming relationships (there's that word again) and even event attendance. Even as Federal agencies open more regional offices and some, like the Air Force, are moving to a more regional model, the basic principles of understanding the market remain constant. For starters: small businesses can still be successful utilizing the tools and resources provided. These include mentor-protégé programs and set-aside designations; as well as promoting regional notoriety or "connection" to work located in their area of the country. For example, of the 33% of small business work mentioned by the Associated Press, it would not surprise us to learn that much of it was based in the DC metro area anyway. Work in Huntsville, Alabama is probably more likely to end up with a Huntsville firm (at least more than 33% of it). Lastly, niche technologies and capabilities also distinguish small business firms apart from each other and can make winning DC business, outside DC easier. Of course, the contracting officials still need to know you exist before you can win that business, but that's a whole other blog.

Watercooler

One of the interesting points mentioned around our hallways today was that one effect of the location of firms in winning government business is an always growing regional economy. The government contracting market feeds a regional economy that manages to remain strong regardless of the economy nationwide. As more work is farmed out each fiscal year, the government spends more on all government contracting firms and sustains a robust local economy. So, in addition to being close to the customers, DC does have advantages, even more apparent now in the midst of what many consider a major downturn in the US economy. Not to mention the short, daily commutes.

Unisys' protest over being left out of the final bidding for TSA's $1.5 billion Information Technology Infrastructure Program (INPUT Opportunity # 36132) was widely expected. However, it also portends an emerging post-award capture strategy.

Unisys very likely has a solid list of arguments behind their protest. It also is an interesting strategic move since their term as incumbent is scheduled to end on December 31st, 2008. In May, we watched IBM quickly drop their protest over the award of the FBI's Next Generation ID system (INPUT Opportunity # 16535) and join successful bidder Lockheed Martin in doing the work. We are hearing stories of more of such "settled protests," which may mean that protests and negotiations are becoming more common in the capture strategies of Federal contractors and in the expectations and schedules of Federal procurement officials.

The upcoming retirement of DISA Director Lt. General Charles Croom brings with it many issues that have been bandied about industry since his announcement. He has been a staunch component of conservative and conscious innovation and efficiency, but the most recent talk is actually about his potential successor.

A recent INPUT blog post discussed the recently blocked nomination of Navy Rear Admiral Hight to follow Croom as DISA Director. The Senate rationale centered on a conflict of interest due to her marriage to a Northrop Grumman VP – a conflict that did not seem to bar her from her current Vice Director position or other career achievements.

I recently spoke with a senior level DISA official about this and other leadership changes, as well as how DISA is positioned to navigate upcoming organizational changes. Our conversation is summarized below:

On Navy Rear Admiral Hight

She echoed the sentiment expressed in the INPUT blog, and characterized the problem as a "perceived" conflict of interest. The same conflict of interest existed when RADM Hight became Vice Director, so the current focus on it now is puzzling. In the wake of some very public acquisition and management missteps (e.g. the recent Northrop Grumman/Boeing/Air Force protest ruling and the forced resignations of former Air Force Chief of Staff Gen. T. Michael Moseley and Secretary Michael W. Wynne), she thinks that decision makers may be somewhat gun shy about any potential impropriety. She confirmed that RADM Hight plans to stay on at DISA as Vice Director until the end of her term to provide continuity.

While she could not name names, she confirmed that DISA is continuing the search for a new Director. The challenge will be in meeting the criteria: someone who is suitable for the position, a 2-star General seeking a 3rd star; and available. A review of each military branch has a limited number of Generals from which to choose, especially during wartime.

On Stability and Continuity

Our contact emphasized DISA's conscious efforts to provide stability as the organization navigates the Base Realignment and Closure (BRAC) process and its move to Ft. Meade, MD; changes among its leadership; and the upcoming change in administration. In addition to Lt. General Croom's retirement, there are other notable comings and goings among DISA leadership:

DISA's military leadership comes and goes every 2 to 3 years, but the agency maintains a corps of civilian SES members who have been with the agency for at least 10 years. This team, which includes CIO John Garing, Component Acquisition Executive Tony Montemarano, and CTO Dave Mihelcic, provides a solid foundation for the many changes occurring within the next couple of years. Our source also highlighted the importance of the GS-15 professionals within DISA. While executives (fewer than 40) set the strategy and vision, these individuals provide the expertise for the day-to-day operations that keep DISA on target.

On BRAC Transition Planning

Under the leadership of Lt. General Croom, DISA's planning for the future has been detailed and thorough. Because of the critical nature of DISA's mission – keeping DoD's networks on at all times – BRAC and leadership transitions must be well-developed.

She recounted a meeting of senior DISA officials to discuss executive leadership succession planning. Lt. General Croom gave everyone a piece of paper and asked them to note, anonymously, whether they intended to stay at DISA after the move to Ft. Meade. If the outcome of that exercise is any indication, most of the turnover as a result of BRAC will not be among the leadership. It will likely be among DISA's engineers and other professionals for whom the challenges of the move outweigh the benefits.

On the Future

She is confident that DISA's progress in enterprise services, acquisition agility, and innovation will continue with the cooperation of industry. Lt. General Croom's strategy is deeply ingrained in the culture of the organization, and she does not foresee changes to that vision.

Going "green" is all the rage across the public and private sector as environmental concerns continue to rise (Al Gore must be thrilled). Executive Order 13423 requires the federal government to reduce its energy consumption and greenhouse gas emissions by 30% by the end of 2015. Major corporations, such as IBM, Microsoft, HP, CSC, and Sun Microsystems have fully embraced the idea of green technology and have full- fledged strategies for helping government use them to reduce its environmental impact.

What these companies and many others – hopefully your own – have figured out is that lighting a fire under the green IT market in the federal government requires a comprehensive green IT business strategy. Everyone and his cousin claims to be green, but the companies that have a well-defined business strategy that is infused with new messages and - most importantly - focuses on cost savings will be the market leaders.

A Google search on "Green IT" brings up the usual offenders - energy-efficient electronics and virtualization of data centers. These areas are the low hanging fruit, because they are top-of-mind issues for government and areas where progress has been made. Building expertise and teaming relationships to play in these markets could offer real near-term opportunities. The flip side, however, is that these markets could quickly become crowded. If your company is looking for ways to help green the federal government, you can consider the following green technology offerings:

There are many other technology solutions that can help government reach its green objectives. Don't forget about some of the "fringe" green IT solutions, which are not necessarily green in and of themselves, but their implementation results in lower energy consumption and better resource utilization. SOA and SaaS are good examples. Scanning and electronic document management technologies, which could save a lot of trees, are another.

Green IT is all about delivering the same or better performance using fewer resources, so there are many potential technology solutions that can do that. However, government may not think about them as green IT if contractors fail to present them that way. And that all starts with the strategy.

For more information about developing a green IT strategy for government, view INPUT's latest report, "Going Green: Strategies and Solutions to Serve the Federal Government."

The Acquisition Improvement and Accountability Act of 2007, approved as part of the 2008 Defense Authorization Act's Section 843, provides for key changes to task and delivery order contracts. Contractors who've battled to win a spot on a task order contract vehicle only to be shut out of task order competition will be interested in these changes, which went into effect on May 26.

Fair opportunity to compete

Old rule: Agencies were required to provide contractors with a "fair opportunity to be considered" for task/delivery orders over $3,000. However, "fair" was not well-defined and many task/delivery orders were awarded before all eligible contractors were even aware that it existed.

New rule: "Fair opportunity" is better defined as providing contractors with a notice of the task/delivery order with a statement of needs; a "reasonable" period for them to provide a proposal in response; disclosure of significant factors/subfactors; a written statement documenting the basis for best value awards; and an opportunity for a post-award briefing.

Single source awards

Old rule: Multiple task/delivery contract awards were preferred.

New rule: The new statute reinforces the preference for multiple awards, and prohibits agencies from awarding task/delivery order contracts over $100 million to a single source. Any exceptions must be justified in writing by the agency head.

Task/delivery order protests

Old rule: Contractors could only protest task/delivery orders on the grounds that "the order increases the scope, period, or maximum value of the contract under which the order is issued."

New rule: Contractors can protest large task/delivery orders on any grounds, and allows for protests for any task/delivery order over $10 million.

These changes are likely to have some significant ramifications, both good and bad. The use of task order vehicles has increased dramatically over time, and now represents nearly 30% of all federal IT spending. But it's not easy to compete on these contracts. Countless times I've heard contractors complain about how difficult it is to win task orders. We know that winning a spot on a task order vehicle is simply a license to hunt, but many times task orders were awarded before most of the eligible contractors knew that it was hunting season. Section 843 is designed to provide a better playing field by ensuring that everyone is aware of the opportunities. It also gives contractors a better shot at some of the larger task orders. However, the game-changer is the ability for contractors to protest task orders awards.

Because a big chunk of contracting happens behind the task order veil, this could have a significant impact on the acquisition environment. As it stands now, there were 6.3% more protests in FY2007 than FY2006 (see the Exhibit 1). While there has been only been an overall 4% increase in protests from FY2003 to FY2007 (with fluctuations in growth and decline), the percentage of protests sustained by GAO has climbed steadily over that time.

Exhibit 1

Bid Protest Statistics, FY2003-FY2007

Will we begin to see a much higher volume of protests now that task orders can be protested? That remains to be seen, and I think it depends primarily on the vehicle. For example, only 96 of more than 6,000 task orders on the NETCENTS vehicle were more than $10 million in value (see Exhibit 2).

Exhibit 2

However, for DHS' EAGLE contract vehicle (Exhibit 3), 34 of the 157 task orders (21.6%) were above the $10 million mark.

Exhibit 3

In some cases, it's possible that a $10 million+ task order award would be worth protesting, simply because they don't come along that often.

Whatever the case, we could begin to see some agencies keeping their task orders below $10 million to avoid protest risk. Agencies could mitigate some of that risk by sticking to the "fair opportunity to compete" rules, but that's no guarantee that task order protests won't be part of their future.

On June 10 the Senate unanimously passed the Local Preparedness Acquisition Act, now only the signature of the President separates States and Locals from use of Schedule 84, right? Well, locals from all but 11 states will gain access and state agencies from 26 states will have varying degrees of access based on their individual state's policies.

The General Services Administration (GSA) Schedule 84 offers products and services for the purposes of law enforcement, fire fighting, security products and services, and emergency/disaster response. Federal sales totals for Schedule 84 in FY2007 exceeded $2.23 Billion. State and Local use of GSA's Schedule 70 contracts has seen considerable growth since 2003, ending FY2007 at more than $360 million. Most of Schedule 70's state and local traction is at the local level. Public Safety and homeland security are owned by the locals and therefore it can be expected that the opening of Schedule 84 to state and local buyers will attract attention.

There are many potential strategies for state and local use of federal purchasing vehicles such as GSA's schedules. Florida is allowing its statewide term contracts to expire and replacing them with Schedule 70 contracts. California uses Schedule 70 products and prices as a starting point for it's own California Multiple Award Schedule (CMAS). Despite these and other examples, both sides are moving in baby steps towards capitalization of administrative and financial efficiencies. State and local folks always enjoy bringing up the question of why won't the federal government allow it's buyers to utilize state and local contracts? Putting all notions aside, the obvious potential lies in opening more schedules and other federal vehicles to the state and local market.

So far we have seen GSA's schedules introduced to the state and local market one at a time and many years between. Granted, it was to be expected that state and local's would take their time warming up to the idea of using federal vehicles. Now that Schedule 70 has paved the way, and Schedule 84 seems eminent, it would be nice to think that GSA's quiver will be increasingly available to state and local buyers.

The Civilian Agency Acquisition Council and Defense Acquisition Regulations Council have proposed an amendment to the FAR that would require federal contractors to use the U.S. Citizen and Immigration Services' (USCIS) E-verify system to verify the eligibility of employees working on federal contracts. While the 1996 Executive Order (E.O.) 12989 prohibited government from contracting with contractors that knowingly employ individuals not eligible to work in the United States, a June 6, 2008 order amended E.O 12989 to also require contractors to verify the work eligibility of its contract workforce using the E-Verify system. It prohibits agencies from contracting with companies that do not participate in the system.

Here's a breakdown of the amendment:

Earlier this week I had the pleasure of attending an Analyst Day hosted by Electronic Data Systems (EDS) in Herndon, Virginia. During the event, the guest analysts and our EDS hosts spent time discussing mega-trends that are either currently affecting the government IT market, or will have a decisive impact in the coming years. I'd like to share some of the fruits of this discussion since these trends will be felt by everyone who does business with government.

One of the biggest challenges facing government and industry alike is the increasingly restrictive budgetary climate. "Do more with less" has become the mantra across government. All the analysts I spoke to believe that spending in the federal IT market will remain relatively flat for the foreseeable future. This will be the case particularly in the Civilian agencies, with some arguing that IT spending in the Defense-sector will see only a small spending up-tick of roughly 2% annually over the next few years. INPUT is more optimistic, projecting in our recent Federal Market IT Forecast 2008-2013 that IT spending will increase 3.9% annually, down from the annual growth rate of 7% that we have seen in recent years.

The impact of budgetary limitations will be mixed. The bad news for some vendors is that the increasingly tight market likely will thin out industry ranks through heightened competition. Competition will become even stiffer as the restrictive fiscal environment translates into fewer acquisitions. Only those companies that can adapt their pricing strategies and provide government customers with superior solutions that help cut costs will survive. The good news is that IT can be put forward as the solution to the public sector's fiscal woes. The right vendor offering the right solution at the right price and the right time can dramatically improve the fiscal efficiency of a government program by automating manual processes and allowing fewer employees to accomplish more in less time.

The declining availability of a skilled, college-educated workforce is the second biggest challenge facing industry and government. Although the Bureau of Labor Statistics at the Department of Labor projects that more Americans are earning college degrees, fewer of these graduates are entering public service. Fewer still are graduating with the technology-oriented training that industry and government needs for IT initiatives. This trend has severe ramifications for both industry and government as Baby Boomers retire. For government, "doing more with less" literally means trying to implement programs without personnel. The public sector's loss is industry's gain as government has been turning to vendors for help in the form of outsourcing contracts. Another benefit for industry is that many of these business opportunities have IT components. Government is asking industry to do more than put rear-ends in seats. They are asking for combined personnel and IT solutions, like those called for in the Acquisitions and Business Operations Support for the U.S. Special Operations Command or Help Desk Services for the U.S. Patent and Trademark Office opportunities. Overall, INPUT is currently tracking 200 Forecast-RFP and Pre-RFP contract opportunities related to the outsourcing of business operations.

Finally, the pressures mentioned above, combined with global security concerns, are forcing government to look at wider solutions. On the Civilian side there is an increasing trend toward the establishment of Shared Service Centers and competition of Lines of Business requirements as agencies consolidate common business functions. On the Defense side, the keywords are interoperability and net-centricity. As the U.S. is increasingly required to support a worldwide force, the Defense establishment is turning toward massive, overarching solutions to integrate IT services; none more so than the U.S. Navy which is implementing the Navy-Marine Corps Intranet (NMCI) Project. According to EDS, the integration of practically all of the Navy and Marine Corps' legacy systems has been completed and 10-15,000 seats are being deployed or refreshed per month. The success of the NMCI project is being watched closely at DoD, which is moving forward with the development of the Defense Knowledge Online Intranet. Once completed, the DKO will be the world's largest intranet.

These are just some of the overarching trends we were able to discuss in one day at EDS. Clearly, significant challenges face government and industry in the coming years, not to mention what the election of a new presidential administration and Congress will bring to the table. As a group, however, all of the analysts I spoke to are convinced that with challenges come opportunities. Those companies that succeed will be the ones that can leverage the intelligence and savvy of their personnel to help government "do more with less" in the most efficient and cost-effective way.