Small businesses have long lamented the difficulty of competing for federal government contracts. Doing business with government is not for the faint hearted, and it appears it will probably get more complex and costly before it gets better.
First, in 2001, a law will take effect mandating that government at all levels withhold 3 percent of all payments made to government contractors. Yes, most firms that do business with the government at any level will have 3 percent of every payment subtracted. Why? This was Congress’ way of cracking down on tax evaders, even though a tiny fraction of government contractors underpay, or don’t pay taxes. Everyone must suffer, and the smallest of firms certainly will as their cash flow will be severely disrupted by this forthcoming scheme. (SBE Council is working hard to repeal this forthcoming mandate.)
Next, it was announced today (June 9) that President George Bush signed an Executive Order (EO) last Friday, June 6 requiring federal government contractors to use an electronic verification system to ensure their employees can legally work in the U.S.
A Department of Homeland Security (DHS) media release on June 9 clarified the direction of the executive order: “In response to this Executive Order, Secretary Michael Chertoff today designated E-Verify as the system of choice to ensure that the federal government only does business with companies that agree to verify the legality of their new hires and further, that the specific employees tapped to perform contract services in the United States for the federal government are authorized to work in this country.”
According to the release, “E-Verify is a free Internet-based system that allows enrolled employers to confirm the legal status of new hires within seconds.”
Legislation in the Congress, and a “no-match” rule being pursued by the Department of Homeland Security (DHS) would mandate that all employers use the federal E-Verify system to check the legal status of their employees. Employers groups (including SBE Council) have opposed this measure on several grounds, including the fact that E-Verify is far from perfect – in fact, a federal government inspector general report found in 2006, that the error rate of employees checked against the Social Security Administration (SSA) database was 4.1 percent.
The DHS said that it will release a proposed rule on the EO targeting federal government contractors, and the public will have sixty days to comment on it. Response from the business community is expected to be less than enthusiastic, as the use of E-Verify could create many problems for small businesses.
Incredibly, small firms have still managed to win 23 percent of the value of all federal contracts despite existing bureaucratic challenges. Now, it appears additional barriers will be erected that only serve to thwart much-needed competition in the federal procurement arena against our big business counterparts. For a Congress and Administration that keep saying they want to do all they can to help small firms gain access to government contracts, what they are doing is not very helpful.