New incentives for vets, HUBZone subcontracts primes need those companies to boost their performance ratings.

The Defense Department is moving to steer more subcontracts to service-disabled veteran and HUBZone businesses by rewarding prime contractors for working with those firms.

The Defense Contracting Management Agency is telling primes they cannot receive top performance ratings unless they meet their negotiated subcontracting goals with businesses in four categories: small businesses, woman-owned firms, small disadvantaged businesses and either service-disabled or HUBZone companies.

A company that fails to meet all four goals will be graded "acceptable," rather than "highly successful" or "outstanding." A higher rating improves the company's past performance score for future contracts.

Some prime contractors say that will lead them to shift work to SDV and HUBZone firms. "I can guarantee you that those dollars are going to come away from minorities and go to SDVs," said Murray Schooner, director of supplier diversity for Unisys. He spoke Nov. 18 at a forum sponsored by the Federal Interagency OSDBU Council in Arlington, VA.

Primes are learning of the new policy as they go through their annual DCMA performance reviews. "It is a little bit of a shock to some of these contractors," said Mary Seabolt, assistant director of DCMA's small business office.

She said the policy was changed to conform to the Small Business Administration's performance rating system. SBA is responsible for reviewing the subcontracting performance of prime contractors in civilian agencies.

Congress has set a goal of awarding 3% of prime contracts to companies owned by service-disabled veterans and an additional 3% to HUBZone firms. A prime contractor's subcontracting goal may be set higher or lower.

Neither the Defense Department nor civilian agencies have ever come close to those goals. In fiscal 2003, the Federal Procurement Data Center reported, SDV firms received less than one-quarter of 1% of DOD's prime contract dollars; HUBZone firms received about 0.8%.

President Bush issued an executive order Oct. 20 directing all agencies to provide more contract opportunities for service-disabled veterans. A set-aside program for those businesses was established last spring. "It was Congress's recognition that veterans have not had the same opportunities as some others have," said Wayne Simpson, deputy director of the Veterans Administration OSDBU.

But the emphasis on SDV and HUBZone companies is drawing fire from some minority business advocates. Henry Wilfong Jr., president of the National Association of Small Disadvantaged Businesses, said contracts that go to SDVs should come out of the pockets of large businesses rather than small ones. "It's not that I don't want you to get your share, but I don't want you to jump on my share," said Wilfong, who is a disabled veteran of the Korean War.