COMMERCIALIZATION IN-DEPTH:
Risks, Trends, and Policy Solutions
Federal procurement's shift toward commercial products and services carries significant implications for small businesses, innovation, and community economic health. Understanding these implications is critical for stakeholders seeking effective policy solutions.
Why Commercialization Is Urgent Now
On April 16, 2025, the White House issued a new Executive Order on Commercial Solutions in Government Contracting alongside procurement reforms, intensifying the already troubling trend toward market concentration in federal contracts.
This Executive Order explicitly directs federal agencies to increase procurement of commercial products and services—heightening risks to small business participation if safeguards, such as the Rule of Two, aren't strictly enforced.
Given this immediate policy shift, it's crucial for stakeholders to understand the detailed implications, risks, and policy solutions clearly outlined here.
🟥The Current Landscape: Vendor Decline and Market Concentration
From FY2008 to FY2024, the number of small-business federal vendors has dropped sharply by 49%. Concurrently, the government increasingly awards larger contracts to fewer firms, deepening market concentration and undermining competition. These shifts harm innovation, inflate costs, and negatively impact regional economies.
Key Data Points:
Vendor Decline: A 49% reduction in the small-business federal vendor base (FY2008–FY2024).
Contract Concentration: Fewer firms receiving significantly larger contracts, limiting broader small-business participation.
Reduced Innovation: Declining diversity among suppliers limits innovative solutions and adaptability.
🟥Concrete Impacts on Communities and Innovation
🔷ECONOMIC COSTS:
When contracts concentrate in fewer hands, local economies suffer from job losses, reduced economic diversity, and decreased resilience. Small businesses traditionally provide innovation, competitive pricing, and specialized solutions that larger firms often overlook.
🔷CASE STUDIES OF NEGATIVE IMPACT:
Rural Infrastructure Providers:
Local firms historically serving community infrastructure projects are increasingly bypassed.
Tech Startups Outside Major Metro Areas:
Innovators from diverse regions face barriers to entering federal markets dominated by large incumbents.
Small Manufacturers:
Loss of small manufacturers undermines local employment and economic stability, despite broader policy goals of strengthening domestic manufacturing.
🟥Policy Recommendations: A Strategic Path Forward
To reverse harmful trends and harness commercialization positively, we propose clear, bipartisan solutions:
Strict Enforcement of the Rule of Two:
Mandate federal agencies to rigorously apply the Rule of Two, ensuring contracts are competitively awarded to capable small businesses whenever possible.
①
Oppose Excessive Bundling and Consolidation:
Actively restrict practices that unnecessarily combine contracts into larger awards, preserving opportunities for smaller enterprises.
②
Enhance Transparency and Accountability:
Require detailed reporting from federal agencies on small-business contracting outcomes, ensuring adherence to statutory goals.
③
Incentivize Regional Economic Diversity:
Implement policies encouraging federal procurement from geographically and economically diverse regions, boosting community resilience and innovation nationwide.