Gov’t Partnerships: 8a, NIB, SBIC, Good or Bad?
Pj de Marigny, DITMo Strategies
Director, GARP, S. California Chapter
26Sept2011, Newport Beach, CA. I have witnessed the adverse impact of Gov’t programs through a family-owned small business manufacturer. We employed about 55 mostly minorities in inner-city Brooklyn. The work was difficult, the working conditions were uncomfortable, and the profitability was marginable, but everybody worked…hard.
GSA, the procurement arm of the federal government, and other independent agencies like GPO and DoD post bid requests for annual or one-off supplies contracts. A part of the contract is set aside for small business to bid on in a sealed bid. The set aside small business portion became smaller every year, the reason? Minority set asides (8a) and National Industries for the Blind were given automatic awards of an increasing portion of the small business contracts.
The facade is that the government is leveling the playing field and championing the cause of the underprivileged. Proponents like Colin Powell, Al Gore, et. al, would cite how minority-owned, women-owned, and the blind industries were gaining their share of the American Dream.
In reality, the 8a contract in our case, was going to one minority who then subcontracted out with a markup to non-minority owned contractors. The price the government paid for the supplies was significantly higher and the shipments were often shipped late. The government gave free bills of lading and preferential treatment to these contractors to the adverse impact of hurting firms like us.
We took a tour through the NIB (Blind) facilities and found state-of-the-art machinery, a huge facility, and very few workers, and even fewer who were blind. The set-aside to NIB was a sham for political payback. As the contracts to small business got smaller, we were forced to fire and lay off hard-working, decent, mostly minority workers.
We made our own machines and most of the time we were the low cost producer because our customized machinery built from scrap yards and wooden jigs was more efficient than the big business sophisticated machinery. Small business works because it releases the creativity of the individual. We received no government incentives, no subsidies and no free government bills of lading.
The same SBA created another program called SBIC, small business investment companies. Here is a worthwhile program championed by the late senator Ted Kennedy. The difference between Obama green and SBIC is simply this, that SBIC lets the VC experts make the choices with their own skin in the game based on merits of the investments in a sea of competitors vying for good deal flow and portfolio companies competing for capital.
In the case of the SBIC program the government is not making the choices of portfolio companies; rather, they fund deals that meet their requirements. The program is saturated in contradictory rules and red tape as with every government activity, but the VC community has made the program work well. The difference is that the venture community chooses portfolio companies, not the government.
