Contract Terminations in Federal Procurement: Assessing the Disparate Effects on Small Disadvantaged Businesses

• In Event: Institutions and Procurement Policy

Abstract

Public procurement strategies to advance social outcomes consider the type of goods or services being acquired and the entities from which they are purchased (Hafsa et al., 2021). In the U.S., the question of from whom goods and services are being purchased is partly addressed by focusing on procuring from small businesses (SBs), which can be further categorized into small, disadvantaged businesses (SDBs), who often obtain federal contracts through set-aside programs and simplified acquisition methods. The set-aside programs ensure that small, disadvantaged businesses have equitable access to government contracts. Additionally, government contracts valued below the simplified acquisition threshold, currently set at $250,000, are set aside for small businesses under the simplified acquisition process. Transaction costs associated with bidding for federal contracts are often high for small businesses. However, set-aside programs and simplified acquisition methods help mitigate these costs (Hawkins, Gravier, and Randall 2018). 

This research aims to examine the impact of the current U.S. administration’s executive orders, which eliminated diversity, equity, and inclusion (DEIA) initiatives, and the consequences for SDBs. The executive order directed federal agencies to eliminate DEIA-related programs and mandates across federal employment, contracts, grants, and policies. We assessed the consequences of these policy shifts through contract terminations for convenience of federal contracts, which allow the government to end contracts before completion. In this paper, we answer the question of whether the Trump administration’s efforts to eliminate DEIA initiatives in government disproportionately impacted SDBs. We draw from transaction economics theory to explore how the contract termination varies across industries. Using federal procurement data from the System for Award Management, we identified contracts that had undergone early terminations for convenience and compared termination rates across different US administrations. Drawing from the analysis of Brunjes and Rodriguez-Plesa (2024), we selected nine industries where SDBs are frequently contracted, well-represented, and have consistently secured at least 10% of federal contracts. The industries included in our analysis are IT systems, logistics support, structure repair, training, auditing, guard services, court reporting, janitorial, and trash collection. Preliminary findings show that SDBs are more likely than other firms to have had contracts terminated for convenience. The results offer insights into the disparate effects of recent policy shifts and the association between transaction costs and contract terminations. The study has important implications for informing future federal procurement policies for small disadvantaged businesses. 

Authors

• Srinithya Nagarajan, University of Washington
  Presenting Author

• Benjamin Manning Brunjes, University of Washington
  Non-Presenting Co-Author