SBA to let larger companies win small-biz contracts

By Sarah Chacko

The Small Business Administration is rolling out a slew of rule changes intended to stop the misuse of small-business contract programs.

The SBA issued a proposed rule last week to increase the size of companies that can benefit from federal small-business set-aside contracts and other preferences.

The changes — affecting firms offering professional, scientific and technical services — would let up to 9,450 additional firms be eligible for small-business contract preferences.

SBA said the changes aim to reflect the current realities of industry — the last such revision was done more than 25 years ago.

For example, the revenue standard defining a small engineering services firm would increase from $4.5 million to $19 million under SBA’s proposal. For computer system design services, the change is more slight — from $25 million to $25.5 million.

The SBA started reviewing its size standards after its inspector general found that several large contractors were getting small-business contracts. SBA officials said at the time the findings demonstrated a need to change the rules for situations where long-term contracts let a small company grow past revenue size limits.

The 2010 Small Business Jobs Act now requires the SBA to review size standards every few years.

Some contractors say the size changes do not go far enough in opening government business up to small companies.

Fernando Galaviz, president of The Centech Group, said the size changes fail to adequately encompass challenges in the federal marketplace, such as the inability for some small contractors to transition out of the program and compete with multibillion-dollar corporations.

The Virginia-based Centech Group employs around 300 people and received more than $112 million in government contracts last year, according to

Galaviz, who chairs the National Federal Contractors Association, which represents small contractors, said he would like to see standards based on the size of a company’s work force, not its revenues.

SBA considered an employee-based standard in 2004 but rejected the idea after complaints from businesses.

SBA is soliciting comments about the size changes until May 16.

The agency also is overhauling its rules governing the 8(a) business program, which gives selected small and disadvantaged companies access to government contracts and developmental assistance.

Construction contract lawyer Michael Payne said many contractors will be happy to see the SBA clarify the amount of work an 8(a) business performs in a joint venture.

Large companies can partner with 8(a) companies in joint ventures and get access to contract set-asides. The SBA’s rules, which were changed last week, now say that the 8(a) firm must perform 40 percent of the work of each joint venture contract.

Previously, the SBA required that the 8(a) company in the joint venture receive a “significant portion” of a contract’s work.

“There are a lot of solicitations that are set aside for 8(a) firms and other kinds of small businesses,” Payne said. “There’s a larger percentage of work being set aside that way so that the smaller companies are often interested in joint venturing or teaming with other companies so that they can perhaps have a chance at winning a project that they couldn’t win on their own.”

Other rule changes that took effect last week include a requirement that prior approval and justification be given for sole-source contracts awarded to 8(a) firms that are valued at more than $20 million.

Marco Giamberardino, the senior director of the Associated General Contractors of America’s federal and heavy construction division, said in a blog post that the rule could have serious implications for Alaska Native Corporations (ANCs), which, along with Indian tribes and Native Hawaiian organizations, are eligible to receive 8(a) contracts of any value. Other 8(a) participants can only receive sole-source contracts of $3.5 million for services and $5.5 million for manufacturing.

Several ANC officials said they welcome the requirement, having already made several recommendations for greater accountability and transparency.

Native 8(a) Works, a coalition of ANCs that support 8(a) contracting, applauded a new approval and justification requirement, saying it addresses congressional concerns about abuses in the ANC contracting program without capping contracts.

“The results will take time to evaluate,” the group said in an email. “We urge policymakers to pause and allow these provisions time to take hold and demonstrate that they have addressed the concerns expressed previously.”

Professional Services Council executive vice president Alan Chvotkin said the justification and approval requirement should not affect many companies or the acquisition process.

“If the requirement to prepare [justifications and approvals] results in fewer awards being made on a sole-source basis, then all firms in the 8(a) program will benefit from the prospect for greater competition,” he said. “It is also possible that agencies may reduce the size of awards to engender greater competition — a positive benefit for 8(a) firms.”

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