The number of new vendors joining the federal contracting market as prime contractors grew from 2001 to 2006, but then sharply decreased from 2007 to 2013, according to a report by the Center for Strategic and International Studies.
The report, highlighted at an event this morning, found that the federal contracting space saw a buildup of new entrants as the U.S. military began operations in Iraq and Afghanistan.
"Interestingly, the fall of new entrants in the federal contracting arena begins in 2006, two years before the financial crisis, before the peak in overseas contingency operations, and while federal expenditures continued to grow," the report finds. "Starting in 2012, however, the fall in new entrants could likely be linked to the Budget Control Act of 2011 and the resulting decline in federal and DOD contract spending."
In recent years, the government has moved to attract new entrants, including through the creation of the Defense Innovation Unit Experimental. CSIS notes that the number of new entrants has not yet risen, but the DOD continues to seek to draw these companies.
Additionally, the CSIS report notes that about 40 percent of new entrants exit the federal contracting market after three years, 60 percent after five years and 80 percent after 10 years.
Across all federal agencies, CSIS notes, small business new entrants had higher survival rates than non-small competitors for the 2001 through 2004 samples.
Small new entrants in the market for DOD contracts outperformed their non-small competitors in 2004 and 2005, but in 2002 and 2003, non-small new entrants had higher survival rates than their small competitors.
"This could indicate that there are unique characteristics associated with the market for DOD contracts that make it harder for small businesses to survive, even with small business set-aside programs," CSIS writes. "These characteristics could be related to the fact that the DOD contracts with highly concentrated industries that are not as inviting to small new vendors, such as those supplying weapon systems."
During a panel at CSIS this morning following the report's unveiling, Brennan Grignon, director of industry outreach for the under secretary of defense for acquisition and sustainment, said it's a misperception that top Pentagon buying officials only meet with large contractors. She said the Defense Department has undertaken many efforts to reach small companies as well.
Chris Brose, the former staff director of the Senate Armed Services Committee, spoke on the same panel and said small companies would benefit from more focus within the Pentagon.
"I think we need to make a smaller number of larger bets," he said. "We have to pick the winners who are providing the capabilities that are better than other things."