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The United States Government is the largest purchaser of goods and services in the world. In fiscal year 2020 alone, Federal agencies obligated more than $650 billion in federal contracts. Through its buying power, the Federal Government is uniquely positioned to incentivize the economy and strengthen the industrial base. Thus, it is vital that small businesses have ample opportunity to compete in this space.

 

When small firms have the ability to compete and win federal contracts, American entrepreneurs and the federal government benefit. Unfortunately, the federal small business supplier base has shrunk a staggering 40 percent over the last decade. This decline means less opportunity for small businesses to support livelihoods and the communities they serve.  

 

While this decrease can’t be attributed to any one factor, it is safe to say that Category Management has been a driving force behind the decline of the number of small firms serving as federal prime contractors.

 

Category Management (CM) is a government-wide procurement initiative that involves buying common goods and services as a single enterprise. The intended goal of the initiative is to eliminate redundancies, increase efficiencies, and deliver more savings by leveraging the federal government's buying power.

 

These are all worthy goals, but the policy has resulted in pushing small businesses out of the federal procurement space. Category Management discourages the use of individual contracts and consolidates requirements into large contracting vehicles, leading to less competition and fewer contracting opportunities.

 

In 2020, GAO issued a report showing that while dollars and contracts actions had grown for small businesses within the CM initiative, the overall number of small business vendors receiving awards had declined.

 

To put it plainly, a select number of small businesses were able to navigate and benefit from this complex system, while many others were pushed out entirely. In fiscal year 2016, 95,237 small businesses provided common products compared to just 79,114 of those same businesses in FY 2019. A drop of 17 percent in just 3 years.

 

If this trend persists, it will have severe consequences, both for the Federal Government and the small business base.  Fewer small businesses will lead to less innovation, higher costs, and a weaker supply chain. Everyone on this committee believes in bringing more efficiency and less redundancy to our procurement system. Yet, we cannot advance these goals at the expense of small businesses, which are the backbone of our economy.

 

 That is why we must ensure the implementation of this initiative doesn’t run counter to the protections afforded to small businesses under the Small Business Act.  So I look forward to hearing from our panel today about the challenges that category management continues to pose for small businesses and what Congress can do to help.