Aerospace OEMs: How to Choose a Small Business for Government Contract Set-Asides
At some point in your life, you’ve likely been faced with a hypothetical scenario involving money that must be spent. “If you had $100,000,” for example, “and you had to spend it on a new vehicle, what car would you buy?” Considering this scenario as a “problem” would likely make most snicker; there are far more pressing issues in life than being forced to spend $100,000. Some might call this a shining example of a “first-world problem.”
In the aerospace industry, however, this isn’t a hypothetical scenario at all; it’s a stone-cold reality. As a parameter of a government contract, most aerospace OEMs are tasked with a portion of their annual budgets as set-asides to business with certain designations. These include, but are not limited to, minority-owned business (woman-owned, Native American-owned, etc.), veteran-owned businesses, and “small” businesses designated by the U.S. Department of Commerce. While this has a profound role in boosting the small to middle-market economy, diversifying the market, and preventing profit shares from consolidating profits around a few top companies, it’s inaccurate to view this dynamic through the lens of pure altruism. If the OEM chooses not to work through these smaller businesses, they do not pocket the difference; in other words, if you don’t use it, you lose it.
As a side-effect of this structure, businesses that do possess such designations are now in something of a Wild West Land Rush, investing significant resources in new technologies, infrastructure, and marketing in an effort to bring their offerings to the attention of large-scale OEMs who are currently wary of trends signaling a looming production demands they might not be equipped to handle. In a press release published on HMG Aerospace, for example, it was reported that Airbus delivered 800 aircraft to customers, with an “industry-leading” backlog of 7,577 orders moving into 2019. All trends are pointing to a significant ramp up in aerospace production in the coming years, and smaller businesses are looking to capitalize.
“There are probably about 10 areas that we’ve tracked where there is brand new technology going to market where there’s not capacity,” says the Ohio Aerospace Institute’s Donald Majcher. “And, so if you can actually highlight those and partner with people that could help develop product in those areas … for small manufacturers that’s a real opportunity.
But what may be a boon for one party may not necessarily be good for the other. Due to the need for large OEMs to exhaust their budgets in accordance to an annual timetable, there is an element of risk associated with cementing a small business partnership too quickly. Without direct control once it is in the small business’ hands, there is an expectation that the partnership will maximize the capital in question to its fullest potential. In a perfect world, there would be ample time for the OEM to fully analyze the processes of the businesses in question and make an educated determination of its commitment to traceability, transparency, and accurate fulfillment. But with a dynamic built on delegating billions of dollars in extremely narrow window of time, sometimes these reports are rushed – and too often the OEM pays dearly for their mistake. According to Lockheed Martin, for example, over 95 percent of reported counterfeit issues are the result of procuring parts from distributors or brokers not authorized by the component manufacturer.
In order to avoid such issues, aerospace OEMs should concentrate on delegating their set-asides to small businesses with a proven track record of sourcing parts direct from the component manufacturer. Here at Partstat, for example, we have operated as a Boeing Gold Vendor since 2009, and we are authorized to purchase inventory directly from over 300 manufacturers including Siemens, Circor, GE, Triumph, and Alcoa. We understand that the decision of who to trust a budget set aside in a high-value contract should not be taken lightly, and we feel that the best way to represent the extent of our capabilities is to show what we’ve done in the past.
The quickest and most accurate way to evaluate a small business is to look at their history. Who else in your industry has trusted their abilities? Who are they authorized to purchase from? What certifications do they possess? If the small business you are currently considering is wary to disclose this information, then it should serve as a signal to consider other options.