Bonuses to Be Cut at Agencies Failing Small Business Under Bill
By Nick Taborek, Bloomberg Government

Thousands of federal government executives risk losing their bonuses under a bill that would establish the first penalties for agencies failing to meet small-business contracting goals.

U.S. Representative Sam Graves, a Missouri Republican who chairs the House Small Business Committee, told Bloomberg Government he plans to introduce the bill today. Eleven of 24 agencies missed their targets in 2010, according to the Small Business Administration.

The bill also would raise the share of eligible contracts that the federal government aims to award to small businesses to 25 percent from 23 percent, according to a draft of the legislation.

“If you don’t meet goals, why should you get a bonus?” Graves said in an e-mail. “One of the biggest complaints I receive from small businesses is that the goals lack teeth since agencies are free to ignore them.”

Under the proposal, senior executives wouldn’t be eligible for incentive pay the year after their agency failed to meet its target for small business awards.

There were 7,893 senior executives in the federal government as of December 2010, according to a Congressional Research Service report published last April. They include chief information officers and strategic advisers for intelligence and space programs.

The executives, who act as links between political appointees who lead federal agencies and the civil servants who staff them, earn between $119,554 and $179,700 a year and may be eligible for performance bonuses of as much as 20 percent of their salary.

Senior Executives

A top-earning executive would be eligible for performance pay as high as $35,940. The maximum annual amount an executive is permitted to receive, including special recognition such as a Presidential award, is $230,700, according to the CRS report.

Graves’s proposal would apply to all senior executives, whether or not they are involved in procurement. If signed into law, it would create the government’s first penalty for missing the small business contracting goals, he said.

“Leadership comes from the top, so it is indeed the top level executives who should be held accountable,” Graves said.

Terry Williams, chief executive officer of the Washington- based American Small Business Chamber of Commerce, didn’t immediately return a phone call and an e-mail seeking comment.

The Defense Department, which spent $368 billion on contracts in fiscal 2010, or 69 percent of the government-wide total of $534 billion, missed its small-business goal each year from fiscal year 2006 through 2010. Results for fiscal 2011, which ended Sept. 30, haven’t been released.

Contracting Goals

The Defense Department doesn’t comment on pending legislation, Cheryl Irwin, a Pentagon spokeswoman, said in an e- mail. The Small Business Administration also declined to comment, Tiffani Clements, an agency spokeswoman, said in an e- mail.

“It’s always good to have incentives for people to try to reach those goals,” said Allan Burman, a former head of procurement policy for the federal government and now president of Jefferson Solutions, a consulting firm in Washington. Tying every senior executive’s bonus to the small business contracting goals may not be the best incentive, he said in a phone interview.

Raising the government’s contracting goal for small businesses by 2 percentage points may direct about an additional $11 billion a year to small companies, Graves said. Small companies received $98 billion in federal contracts in 2010, or 22.7 percent of eligible contracting dollars, according to the Small Business Administration.

The definition of a small business differs depending on the type of company. For example, highway construction companies are allowed to have annual revenue as high as $33.5 million to be considered small businesses, while the maximum for life insurance carriers is $7 million.

Graves introduced a similar bill in January 2010, when the Democrats controlled the House. The full chamber didn’t vote on the proposal.