How the Stimulus Act Failed Small Tech Companies

I was recently on Capitol Hill talking with staffers on both sides of the aisle whose job it is to focus on legislation impacting small businesses. To their credit they are always open to the feedback and ideas of the small business community so we had many opportunities to tell the same disappointing story.

As the American Recovery and Reinvestment Act (ARRA) was being drafted and put into law our industry was supportive. It wasn’t a perfect bill by any stretch, but there were enough reasons to think a fair number of dollars would reach the smaller players in IT industry. The reality is that hasn’t happened. Instead, the majority of projects have gone to the same entrenched companies serving in the inner circle of IT providers to the Federal government. The work that has funneled down through the subcontracting pipeline has typically been the equivalent of what one of our Board members described as “day labor.” At the same time we’ve seen the good quality, high margin components of projects outsourced to companies outside the U.S.

Other IT-related projects undertaken by Federal agencies were nothing better than make-work. A good example is the Department of Transportation hiring 3,500 people to rewrite well-functioning COBOL code in C++ or C#. The result was a reduction in the labor pool for the tech industry and a wasteful use of millions of tax dollars.

The projects on which small tech companies could bid were typically bundled in five inch thick RFPs. I’ve talked to several members who managed to get on the GSA schedule and quickly realized the projects weren’t written with their companies in mind.  For these members to compete they had to collaborate with dozens of other small firms which presented even larger logistical challenges.

Policymakers counted too heavily on the quick resolution of the healthcare debate and broadband expansion. The drawn-out negotiations have delayed billions of dollars of spending by doctors, dentists, rural municipalities, schools and other providers that will eventually flow to tens of thousands of VARs to help them meet the electronic medical record keeping requirements and connectivity needs.

In the end, small tech companies got hit with a triple whammy! ARRA dollars that were supposed to provide a bridge through the downturn never materialized. Projects like Healthcare IT and broadband were delayed by red tape and political infighting. And at the same time, the credit crunch for small tech continues unabated.

As your industry trade association we are working to help our industry and members overcome these challenges. But we need your help. I encourage you to become engaged and active in our grass roots efforts to find better solutions.  Contact Mike Wendy to get involved!