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GAO: Puerto Rico businesses benefit more from SBA than those stateside

By on July 14, 2017


SAN JUAN – Small businesses in Puerto Rico were awarded a higher percentage of federal contracting obligations than what was awarded nationwide for fiscal years 2006 to 2016, the Government Accountability Office (GAO) concluded in study ordered by the 2016 Puerto Rico Oversight, Management and Economic Stability Act (Promesa).

In 2016, small businesses on the island received about 47 percent of federal contracting obligations to Puerto Rico or about $319 million out of $682 million compared with 23 percent of federal obligations awarded to small businesses nationwide, the GAO said.

Promesa includes a provision for the GAO to review the application and utilization of SBA programs in Puerto Rico. The agency examined, among other things, trends in small business contracting and the use of SBA programs in Puerto Rico that provide contracting preferences to small businesses.

It also examined stakeholder views on any challenges that small businesses in Puerto Rico face in obtaining federal contracting opportunities. To analyze trends in the use of SBA programs, the GAO explained it obtained data on prime contracts for Puerto Rico and used nationwide data as a reference point. It interviewed federal agency contracting officials, industry associations in Puerto Rico, and economic development entities about challenges small businesses in Puerto Rico face in obtaining federal contracts.

According to the U.S. Census Bureau, more than 99 percent, or about 44,000, of the businesses in Puerto Rico are small. Total federal contracting obligations on the island have ranged from $404 million to $1 billion during the past 10 fiscal years.

Agencies and industry associations that the GAO interviewed identified several challenges small businesses in Puerto Rico may face in obtaining federal contracting opportunities. Challenges they identified included a lack of knowledge about the federal contracting process; difficulty meeting procurement requirements; and difficulty accessing bonding, financing and capital. Many of these challenges are similar to those the agency identified in a September 2012 report that small businesses in general face in seeking federal contracting opportunities.

“However, stakeholders indicated that some challenges may be exacerbated by Puerto Rico’s geography and economic conditions. Stakeholders did not identify any federal laws that have created unique contracting challenges for small businesses in the region. SBA and the three other federal agencies GAO contacted identified examples of conducting outreach, providing training and seminars, coordinating with local organizations, and other efforts intended to help Puerto Rican small businesses obtain federal contracting opportunities,” the report said.

The SBA negotiates specific agency-wide goals to help ensure that the federal government meets the 23 percent statutory goal for contract dollars awarded to small businesses under the Small Business Act. Of the four SBA programs that provide contracting preferences based on socioeconomic designations, a higher percentage of obligations was awarded in Puerto Rico through the 8(a) Business Development program compared to the Historically Underutilized Business Zone (HUBZone), Women-Owned Small Business (WOSB), and Service-Disabled Veteran-Owned Small Business (SDVOSB) programs. The use of 8(a) contract awards in Puerto Rico was “somewhat” higher than nationwide, while the use of the other three SBA programs was roughly comparable, the GAO found.

“We found that small businesses in Puerto Rico received a relatively high proportion of federal prime contracting obligations for work performed in Puerto Rico compared to small businesses nationwide. Additionally, we found that a greater percentage of obligations was awarded to small businesses in Puerto Rico through full and open competition and the 8(a) program compared to the other three SBA socioeconomic contracting programs.

“We also found that the number of HUBZone applications has increased since SBA expanded the number of HUBZone-eligible census tracts in June 2016; about half of the applicants were located in newly designated HUBZone-qualified census tracts,” the report reads.

The GAO also found that in fiscal year 2016, federal prime contracting obligations awarded to small businesses in Puerto Rico for contracts were concentrated in the manufacturing sector (about $215 million, or 67 percent), the construction sector (about $69 million, or 22 percent), and the professional and business services sector (about $23 million, or 7 percent). For contracts awarded using 8(a), HUBZone, WOSB, or SDVOSB programs, these three economic sectors were also among those that received the greatest amount of obligations.

The number of applications submitted to the HUBZone program in Puerto Rico increased, and some businesses with primary locations in newly eligible qualified census tracts applied to the program. A total of 30 businesses submitted applications to the HUBZone program between June 2016 and March 2017.

“Based on our analysis, 16 of the 30 businesses that applied between June 2016 and March 2017 had primary locations in newly designated HUBZone-qualified census tracts. Fourteen of the 30 HUBZone applicants had other SBA program designations— 8(a) program (7 applicants), WOSB (6 applicants), and SDVOSB (2 applicants).

Of the 14 applicants with other SBA program designations, seven had primary locations in newly designated census tracts,” the report says, adding that most of Puerto Rico had a HUBZone designation

The number of certified HUBZone firms also increased. Specifically, from the end of fiscal 2015 to the end of fiscal 2016, the number of certified HUBZone businesses in Puerto Rico increased by two (from 23 to 25), whereas for the first six months of fiscal 2017 (October 2016 to March 2017), the number of HUBZone businesses increased by 15 (from 25 to 40). Six of the newly certified HUBZone businesses were located in newly designated qualified census tracts.


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