By Alan Chvotkin and Sam Van Kopp
On January 26, 2023, the Department of Defense (DoD) published its long-awaited, 25-page, first strategy under Secretary Austin and new director of the Office of Small Business Programs, Farooq Mitha. The overall objective of the strategy is to enable the Department to “expand and strengthen its relationship with small business and better leverage their capabilities to help solve the Department’s and our nation’s most complex challenges.” While DoD has again been the Executive Branch leader in dollars awarded to small businesses, there are mounting challenges in sustaining that momentum and achieving the strategy’s objectives.
The DoD 2023 strategy is built on three main objectives, all focused primarily on internal departmental functions:
- Implement a unified management approach for small business programs and activities;
- Ensure DoD’s activities align with national security priorities; and
- Strengthen the Department’s engagement and support of small business.
Each objective has three specific implementing objectives and a set of action plans to pursue those objectives. However, there is no timetable for initiating, let alone completing, any of these actions.
Furthermore, the Secretary’s message embedded in the strategy, and the details in the plan, are subject to significant headwinds. As the strategy acknowledges, the number of small businesses participating in the defense industrial base has declined by over 40 percent in the past decade for reasons that are not completely understood. Yet the dollars awarded to small businesses are increasing. As such, fewer small businesses are winning an increasing share of the Department’s small business awards.
Why the decline in small business participation? In part, regulation. At Nichols Liu, we have helped small business contractors navigate overlapping layers of regulatory compliance imposed by the Small Business Administration (SBA), the Federal Acquisition Regulatory Council through the Federal Acquisition Regulation (FAR), and DoD through the Defense Federal Acquisition Regulation Supplement (DFARS). In addition, such rules are always in flux. As the Secretary acknowledged, “regulations and business practices can be difficult to understand or otherwise create barriers or increase the cost of doing business with DoD.”
In our experience, the Federal government’s complicated regulatory environment not only deters small business contractors in general, it specifically disincentivizes cutting-edge work. About 49 percent of DoD’s contract awards in Fiscal Year 2021 were for products, 42 percent were for services, and only 9 percent for research and development. A large segment of the 49 percent that was awarded for “products” support the Department’s major weapons systems and related activities, with the top 5 major primes winning an increasing share of Department’s total contract dollars awarded. Though Secretary Austin’s report lauds small business achievements in research and development, the cost of compliance limits the pool of qualified offerors and puts those who do perform at risk. The more innovative the contractor, the greater their need for legal counsel.
We will be carefully watching the Department’s implementation actions for this strategy. In addition, we have extensive experience in the small business policies, regulations, and the competitive landscape to help companies of all sizes engage with the Department on this strategy, navigate the Department’s competitive landscape, and stay in compliance with the ever-more complex acquisition regulations and requirements.
For more information, please contact the authors of this article or the Nichols Liu attorneys with whom you regularly work.
 DoD Small Business Strategy, available at https://media.defense.gov/2023/Jan/26/2003150429/-1/-1/0/SMALL-BUSINESS-STRATEGY.PDF, at 5.
 DoD Small Business Strategy, at 5 and Figure 1.
 DoD Small Business Strategy, at 5.