WASHINGTON ― A new Pentagon strategy to maximize small business participation in defense contracting is in the works for this spring, defense officials told Defense News.

The Pentagon’s first small business strategy since 2019 would come amid a decline in the number of contracts awarded to small businesses and as Defense Secretary Lloyd Austin has acknowledged the barriers to work with his department are too steep. The strategy would guide efforts to attract more non-traditional companies, new entrants and innovators, according to the director of DoD’s Office of Small Business Programs, Farooq Mitha.

“It’s going to be: How do we all work towards increasing small business participation, because we’ve seen a decline over the past decade in our prime contractors that are small ― a pretty significant decline,” Mitha said. “The bulk of it is how to do make things easier from a structure, engagement and a policy perspective.”

The strategy comes after Deputy Secretary of Defense Kathleen Hicks pledged to create more opportunities for small businesses. She’s acknowledged the U.S. defense industrial base shrank by over 40% over the past decade and warned that if the trend continues, the country could lose an additional 15,000 suppliers over the next 10 years.

The National Defense Industrial Association, which has noticed the shrinking pool for years, warned in a recent report of headwinds for the industrial base that could lead to production or innovation shortages, or further discourage potential new vendors from competing.

The strategy is likely to make recommendations around long-term planning for initiatives like the Small Business Innovation Research, or SBIR, and Small Business Technology Transfer, or STTR, programs ― both considered important vehicles for the military to bring in new vendors and disruptive technologies.

Without congressional action, the latest reauthorization for the government-wide SBIR program expires at the end of the current fiscal year.

“If we want to increase the [defense industrial] base, if we want to bring in new entrants, if we want to transition new technologies [into the military], we’ve got to have stability in the programs that are meant to do these things. I think that’s been something that we’ve been laser focused on, and we’ve gotten some feedback from industry on that as well,” Mitha said.

“It’s a national security benefit to the nation and it’s creating new industries and technologies. I don’t think anyone will tell you that it’s not vital, and I think we need to work collectively to make sure that these programs have long-term legs.”

DoD’s report last month on competition within the defense industrial base said a top priority for the department is accelerating contract award timelines for SBIR and STTR programs, which fall under Undersecretary for Research and Engineering Heidi Shyu. Those programs achieved a 22-to-1 return on investment on investment in and generated $347 million in economic output, the report said.

The nascent strategy will offer further steps to address one of small businesses’ chief complaints, that they have been locked out by “category management,” the name for the government’s efficiency-seeking emphasis on large contract vehicles for common products and services.

Mitha acknowledged category management inadvertently hindered small business participation, but said recent changes at DoD “have helped to get us back on a path of bringing some of these companies in.”

In drafting the strategy, Mitha said his office is also looking at protecting small businesses from investment risk, providing training and information and doing market research on behalf of the acquisition workforce to find small business set-aside contract opportunities.

The strategy is expected to be informed in part by feedback from small businesses themselves after DoD’s Office of Small Business Programs published a solicitation in the Federal Register last fall.

Overall, the effort dovetails with a White House directive last year for federal agencies to increase government contracts to small and disadvantaged businesses, which acknowledges small businesses as major job creators.

“You’ll see a big equity push on how do we leverage the purchasing power of the federal government to bring in and provide more opportunities to underserved communities, and you’ll see more small business enablers to strengthen our supply chains,” Mitha said.

Mitha, who served as a defense industrial policy official in the Obama administration, said there was an emphasis then too, but the accent in the Biden administration is on supply chain and industrial base resilience as well.

“That emphasis makes a really big difference, and I see it in the department now where ― from the secretary, the deputy secretary to other leaders ― small businesses is part of this vernacular, which is really, really important to driving the change that we want to see,” he said.

Joe Gould is senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry.

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