Mark Pestronk
Q: In your last two columns, you noted that smaller travel agencies have little or no opportunities to enter the field of government contracting because of bad decisions by government executives. In addition to the decisions already mentioned, what else did the federal government do to push smaller travel agencies out of the market?
A: The federal government policy is that each government agency is expected to award at least 23% of all federal contracting dollars to small businesses, including women-, minority- and disabled-veteran-owned businesses. In the area of government travel-management contracts, the government has failed to meet any of these goals.
Not that it really matters anymore. Due to poor decision-making by another government agency, over 99% of travel agencies qualify as small, thus making small-business awards meaningless.
The Small Business Administration (SBA) adopts regulations governing the size a business must be in order to qualify as a small business for government contracts. Over the past two decades, the SBA has drastically increased the size limit.
In 2002, the SBA set the size limit at $3.5 million in revenue (or to use SBA's term, "receipts"). For retail travel agencies, this standard means commissions and fees.
So a travel agency had to have an annual average of commissions and fees of less than $3.5 million for the last three fiscal years to qualify as a small business.
This standard was meaningful because quite a few small agencies were able to enter the government market without worrying about competition from large agencies when procurements were set aside for small businesses. Even after the SBA raised the standard to $6 million, a small-business set-aside gave small agencies a fair chance at winning business.
In 2012, the SBA changed the standard to $19 million. Before adopting the higher standard, it asked for comments, and ASTA and the Society of Government Travel Professionals filed joint comments in support.
In retrospect, those trade associations' support was a mistake. The standard, which has since been raised to $20.5 million under the SBA's guidelines for inflation adjustment, means that all but about 49 of the biggest agencies qualify for small-business set-asides of contracts awarded directly to travel agencies. To derive the number, I took the weighted average of commission rates of all agencies as reported in an ASTA study (about 12%) and applied it to the agencies which had their gross sales reported in Travel Weekly's 2015 Power List. Only those with sales of more than about $170 million would not be deemed small business.
As a result of these increases, the small number of government contracts that are awarded directly to travel agencies are being scooped up by what the industry would certainly consider large travel agencies.
So now you know why you have almost no opportunity to win government contracts.
It is time for the federal government to reverse course on all fronts. Government agencies should start awarding prime contracts (with actual business) to small-business agencies under a more meaningful, lower size standard. The awardees can then subcontract for online booking tool service if the government agency so desires.