Small companies gang up to snare big-league business
Boston — It's not easy for small businesses to break into the cozy community of Defense Department contractors. But eight young companies, mostly from the Boston area, may have found a way to get a fair shot at lucrative United States contracts. Dusting off an old federal law designed to encourage research and development by small business, they've pooled their resources and formed a group that will stalk the government's billions for them. And companies from all over the country are calling them to find out how they're doing it.
The problem is, most small businesses often don't have the staff or the time to participate in the complex bidding process. Defense officials, for their part , tend to shy away from smaller companies, figuring (sometimes erroneously) that they're more expensive. And unlike the old standbys, small firms are simply harder to find.
Joint business efforts, especially for research and development (R&D), have been getting a lot of national attention these days. President Reagan is asking Congress to encourage joint R&D ventures by loosening antitrust and patent laws. Fear of antitrust suits has been a major roadblock to business cooperation.
It is reasoned that this kind of cooperation will allow American businesses to be more effective competitors, especially in technological fields.
But the enterprise formed by these eight companies, Small Business Technology Group Inc., won't need to worry about antitrust suits. This week, the US Attorney General William French Smith ruled that the group was legal. The decision was based on a 1958 provision in the federal Small Business Act that allows small businesses to pool their resources for R&D, and for production for the Defense Department. Mr. Smith indicated this is the first time the law has been used.
The need is certainly there. Christine King, president of Expedition Electronics - one of the firms in the group - says she would like to bid on government contracts. But ''because of the size of our company, we can't afford the overhead (costs)'' of filling out the necessary government forms, she says. Her firm only has five full-time employees.
Clarence Walker Jr., head of another group member, Data Signal Corporation, says that by combining the research know-how of the eight companies, ''we can get more out of the sum of these parts than out of the individual parts.''
Karen Hastie Williams, a lawyer who helped form the group, speculates that the reason the 1958 law hasn't been used until now is because the application procedure is so complicated. Such a transaction ''requires a good deal of organization, and has to be processed through the Small Business Administration (SBA) as well as the Federal Trade Commission and Justice Department.''
The companies in the group range in size from five employees to 267. Their revenues span from $250,000 to $11 million. And their products range from fiber optics and lasers to computer software and hardware. Two of the companies are headed by women; two are minority-owned.
With the pooled resources, the Small Business Technology Group will perform marketing, administrative, and bidding functions for all eight companies. It will try to assess Defense Department needs, then use the eight companies to provide products and research.
Government ''needs the innovation of small business,'' the group's president, Joanne McCrae, said in an interview. She says 18.7 percent of all government contracts went to small businesses last year, down from 24 percent 1980. But she also notes that government is spending more than it used to on small business.
Defense Department appears favorable to the idea of working with a group. ''With a group, we can take a single contract, and instead of administering six or seven breakout parts to (a number of companies), we're administering one contract,'' says Edward Fitzgerald at the Boston office of the Defense Contract Administration Services Region.
While the 1958 law doesn't limit the areas of R&D that companies can join forces on, it is limited to defense-related products. Ms. McCrae says that after the group gets going, it may seek to broaden the law. The group has begun marketing efforts, and aims to get its first contract by January.