TASK A : EVALUATION OF GDOT'S SMALL BUSINESS PROGRAM

2015Final Report; December 2013 - September 2015PDFTech ReportFHWA-GA-16-1329GDOT Research Project No. 13-290012889Small businessState government agenciesState departments of transportationEmerging Small Business ProgramGDOT Small Business ProgramUnited StatesGeorgiaGeorgia. Dept. of Transportation. Office of ResearchBoston, Thomas D.Georgia Institute of TechnologyGeorgia. Dept. of Transportation. Office of ResearchUnited States. Federal Highway AdministrationUS Transportation CollectionFederal Regulation 49 CFR Part 26 requires the Georgia Department of Transportation (GDOT) to implement a Small Business Program. The Program must be available to all firms that meet the U.S. Small Business Administration's (SBA) size standard, which generally defines a small business as a firm with 500 or fewer workers. In 2012, the GDOT established a Small Business Program and the State Transportation Board concluded that the most effective way to implement the Program would be to set-aside certain small contracts for bid competition exclusively among small businesses. However, Georgia State law appears to prohibit set-asides because they restrict competition. This report was commissioned to examine GDOT's utilization of small businesses and determine whether or not a set-aside is needed to create greater opportunities for them on highway contracts. The report outlines the legal requirement that must be met to establish a small business set-aside provision and it documents the contribution of small businesses to the State\u2019s economy. The findings of this report were based on examining GDOT's highway contracts awarded between January 2009 and May 2014. Overall, the study found that small businesses played a vital role in Georgia\u2019s economy. They employ 1.5 million workers or 47.3% of the State's workforce. Furthermore, the highway contracts awarded to small businesses by GDOT (between 2009 and 2014) were estimated to have created about 24,000 new State jobs and contributed $2.7 billion in new economic output. It was also found that during the "Great Recession", when major corporations in Georgia cut jobs significantly, job cuts in small businesses were much smaller. In fact, Georgia's economy would have been hurt much more severely by the recession, and its recovery would have taken much longer, had it not been for small businesses. Despite the substantial contribution of small businesses to Georgia, one segment of small businesses encountered considerable difficulties in competing for contracts at GDOT. For example, the study looked at the segment of GDOT's small businesses that had $4 million or less in annual revenue; they were labeled Emerging Small Businesses. That segment made up 66.4% of all GDOT's prequalified and registered contractors. Emerging Small Businesses were unable to compete successfully for small projects, e.g., those $500,000 and smaller. Specifically, they received only 7.0% of the total value of awards $500,000 and smaller and only 16.0% of the total number of such projects - even though one-half of Emerging Small Businesses had annual revenues between $1.0 and $4.0 million. Although Emerging Small Businesses had the capacity to perform small projects, they could not compete against large businesses, which comprised 12.8% of all GDOT contractors but received 42.0% of the total value of awards $500,000 and smaller. Nor could Emerging Small Businesses compete successfully against other small businesses, i.e. those with annual revenues greater than $4.0 million. They made up 20.8% of GDOT's registered contractors and received 51% of the value of awards $500,000 and smaller. The research concluded that Emerging Small Business were unsuccessful not because they lacked capacity, but because large businesses and other small businesses competed against them on small projects, those for which they had the capacity to perform. Given the contributions of small businesses to Georgia\u2019s economy, the research concluded that GDOT and the Georgia General Assembly have a rational basis and legitimate government need for a set-aside program at GDOT