Time to End Second-Class Status for Small Businesses in Alabama

The Huntsville Madison County Chamber of Commerce presents an annual “Armed Forces Celebration” recognizing those serving in the military as well as government contractors. It’s a time to reflect on how much we owe these many people who live in our community. And all of those people are not being treated fairly.

As Secretary of Defense Lloyd Austin III said, “for far too long, it’s been far too hard for innovators and entrepreneurs to work with the department. And the barriers for entry into this effort to work with us in national security are often too steep – far too steep.”

Everyone knows it’s not easy working for the government, but small businesses, including veteran owned small businesses, have an especially hard time. This past April, the Pentagon released a report calling out the many problems facing smaller contractors while extolling the innovation small business contractors bring.

In Huntsville alone, small businesses government contractors support major initiatives at the Department of Defense, Department of Homeland Security, National Aeronautics and Space Administration, Federal Bureau of Investigation and the Central Intelligence Agency, not to mention other Federal agencies.

One issue, bluntly stated, is that small businesses serving the military are not always paid promptly.

I recently spoke with a small business owner who is a subcontractor for a large defense firm. While something called “the Prompt Payments Act” is supposed to ensure he gets paid quickly, he is a subcontractor and the prime contractor he works for is making him wait 90 days. This three-month gap until payment will cost him about $200,000 in annual financing—the equivalent of a highly skilled full-time employee with annual salary and benefits.

Getting paid promptly is just one of the many problems small businesses serving the military face today. In fact, there are a raft of policies that need to be revamped. While my friend’s delayed payment was both irritating and expensive, it is by no means his most significant barrier to growth.

“Small businesses are getting squeezed because we are closed out of many prime contract vehicles,” he fumed, reprising a frequent complaint of local subcontractors in the Huntsville area.

Huntsville’s small business leaders endure something akin to second-class citizenship in the federal marketplace. These businesses, many run by veterans, end up indentured either as subcontractors or shoved into joint ventures (JVs) or teaming arrangements, because they don’t have sufficient past performance that would allow them to successfully bid on big prime contracts.

So, with a thicket of regulations blocking their pathway and industry giants thundering past them, they struggle in David and Goliath contests. Some of them go out of business. Let’s be honest and accept an inconvenient truth. It is better to be a prime contractor providing services or goods to the Pentagon than a subcontractor actually doing the work.

During this Armed Forces Week, it’s time to rethink many of the rules and regulations that govern small businesses serving the federal customer. It’s also past time to say out loud that this is a national emergency. As we look at challenges as complex as threats to our space satellites, cyber attacks on our national infrastructure, tensions with Russia, China, Iran and North Korea, and more, America needs the energy and agile problem solving that small businesses deliver.