The Department of Defense and Its Use of Small Businesses

An Economic and Industry Analysis

by Elaine Reardon, Nancy Young Moore

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Congress has directed that 23 percent of direct federal purchases come from small businesses. As the largest purchaser in the federal government, the Department of Defense (DoD) is key to achieving this policy objective. The impetus for this research was to suggest industries that DoD could target for outreach to small firms. This briefing compares DoD procurement from small businesses with non-DoD federal procurement from small businesses, and it documents the prevalence of small businesses in industries DoD relies upon. The analysis suggests industries for possible outreach efforts and concludes that it is more difficult for DoD to reach the procurement goal than for the rest of the federal government because of the nature of the goods it buys, such as aircraft and large weapon systems. The authors of the briefing used the Federal Procurement Data System to study government spending and the 1997 Economic Census to analyze small firms in the economy.

The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted in the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies, and the Defense Intelligence Community.

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