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High and Dry?

Why Katrina contracts may be out of entrepreneurs' reach
November 1, 2005
URL: http://www.entrepreneur.com/article/80450

In his September address from New Orleans, President Bush stressed the importance of entrepreneurship following the worst natural disaster to hit the U.S. in a century. "We will take the side of entrepreneurs as they lead the economic revival of the Gulf region," he said.

But entrepreneurs could end up feeling sidestepped as new legislation dilutes federal contracting rules, and billions of dollars in emergency no-bid reconstruction contracts are awarded to big companies like Halliburton. "Small businesses are going to be pushed out," predicts Scott Amey, general counsel for the Project on Government Oversight, a Washington, DC, government watchdog group.

One potential barrier for small companies relates to "micropurchases," traditionally federal contracts under $2,500 that are exempt from transparency and competitive requirements. In September, Congress raised the cap on micropurchases related to Katrina relief efforts to $250,000. "Businesses will be competing in essentially a lawless environment for contracts up to $250,000," says Christopher Yukins, a professor of government contracts law at the George Washington University Law School in Washington, DC. Contracting consulting firm Eagle Eye estimates 65 percent of federal contracts are under $250,000.

Allegra McCullough of the SBA counters that billions of dollars will be spent on subcontracting, and small businesses that provide roofing, debris removal and environmental tasks will be in demand. "It's going to depend on what they do," she says, "and how well they [research] the information out there."

Big companies, however, aren't posting Katrina-related subcontracting jobs on their websites, and FedBizOpps.gov, a database frequently used by small-business owners to find government contracts, isn't listing them, either. "I don't even know if small businesses are going to find out about opportunities to perform either on a prime contract with the government or on a subcontract," Amey says.

The Project on Government Oversight estimates half of the $315 billion in federal contract awards aren't open for bidding. Entrepreneurs will have to know the prime contractors and contract officers on a first-name basis. "When the market is no longer based on formal competition, it becomes a market of relationships," Yukins says. "That's the reality."

Watch out for more changes--on September 15, Reps. Tom Davis (R-VA) and Kenny Marchant (R-TX) introduced H.R. 3766, a bill that would let federal agencies award contracts on a no-bid basis and stop government audits of contractor purchases in times of national emergency or disaster. H.R. 3766 could be an amendment in an upcoming Hurricane Katrina relief bill.