New contract regulation helps small business

Superb Value

By Kent Hoover - Business First of Buffalo -

Back To Small Business News

Small companies may get a better shot at winning federal contracts thanks to a new regulation aimed at preventing agencies from counting awards to large businesses toward their small business goals.

The government is supposed to award at least 23 percent of its prime contracting dollars to small businesses. The Small Business Administration says the government exceeded that goal last year, but many of these small business contracts actually went to large businesses.

That's because, under current law, a contract awarded to a small business is counted as a small business contract for the life of the contract -- often up to 20 years -- even if the firm is acquired by a large business or outgrows its small status.

As a result, large businesses are making millions of dollars off contracts intended for small businesses.

The new regulation issued by the SBA won't void these contracts, but agencies no longer will receive credit for them when calculating their small business achievements. The SBA hopes this will lead procurement officers to open other contracts to small businesses in order to meet their goals.

The regulation primarily targets long-term contracts, the increasingly popular multiple-award vehicles that give companies a license to hunt for all types of contracting opportunities. With options, these contracts can last up to 20 years.

Companies with long-term contracts will have to recertify their size status after five years and any time options are exercised thereafter. If they are no longer small, the contract won't be counted as a small business contract.

The regulation also requires small government contractors to notify the government within 30 days if they are no longer a small business because of an acquisition or merger.

Mixed reviews

Opinion vary on how effective the new regulation will be.

"I think it's going to be huge," says Giovanni Coratolo, director of small business policy for the U.S. Chamber of Commerce.

The regulation will make the government's tally of small-business contracts more accurate, and "accurate measuring is an important step to making sure small businesses get their fair share of contracts," he says.

Agencies will feel pressure to award more contracts to small businesses to make up for the deals that are no longer counted toward their small-business goals, he says.

Al Krachman, a Washington, D.C. attorney who specializes in government contracting, calls the new regulation "a mixed bag."

The five-year recertification requirement is a good step, he says, but the SBA failed to take other actions, like strengthening the contract protest process, that would help ensure that only small businesses receive contracts meant for small businesses.

Agencies will face a difficult choice, he says, when one of their contractors loses their small business status. They may decide to stop doing business with that company. That could depress the valuations of some small government contractors, he says, because potential acquirers could no longer count on retaining a company's small business contracts over the long term.

The Democrats who will head the congressional committees with jurisdiction over the SBA say the regulation doesn't go far enough.

Rep. Nydia Velazquez, D-N.Y., says the new rule won't stop procurement officers from miscoding contracts to large businesses as small business contracts. An analysis by her staff found that only 21.6 percent of federal contracts went to small businesses once these miscodings were corrected.

Sen. John Kerry, D-Mass., says the recertification rules "do not get to the heart of the problem." The bundling of contracts into large packages too large for small businesses to handle and the lack of enforcement of small business goals are the real reasons why small businesses aren't getting their fair share of contracts, he says.

The SBA plans to pressure agencies to meet their small business goals by issuing a scorecard on how well agencies are doing.

Annual recertification rejected

Some critics contend small businesses should be required to recertify their size status every year, but the SBA rejected that option. Procurement officials said they don't have enough resources to handle annual certifications. Small businesses said pursuing contracts isn't worth the expense if there's a chance they could lose the deal after only one year.

"Small businesses must be given fair opportunity to grow as they perform federal contracts," says Paul Denett, administrator of the Office of Federal Procurement Policy. "This rule is intended to strike the right balance between fostering growth and accurate data gathering."