Small businesses welcome scrutiny

Proposed rule in the Federal Register

Many small businesses that hold multiple-award contracts say they support a proposed rule that requires them to recertify their small-business status annually.

The rule, published in late April, is intended to prevent companies from collecting small-business set-asides after they outgrow their small-business status. It would also prevent larger companies from getting credit for subcontracting to small businesses unless the business truly is small.

Multiple-award contracts span years, sometimes decades, and under current rules, companies generally have to affirm that they fit the Small Business Administration's criteria when they initially bid on a contract. Under the proposed rule, they would have to certify their status each year.

"Some small businesses and their owners become so well off and [have] so much work that they never want to let go of their size status," said Robert Bell, president and chief executive officer of Space Systems Development Inc., a small technology firm in Colorado Springs, Colo. "This means that the next small business will not have a chance to bid and have a chance to grow."

The current system encourages favoritism, he said. "Many times I have seen where a small business has won a small-business set-aside and the government likes the small business so much that the contracting officer will never pay attention to see if the small business has outgrown it status, which leaves the true small business out in the cold."

Recent scrutiny has shown that small businesses can grow quickly.

According to the proposed rule, SBA reviewed Federal Procurement Data System statistics for four businesses receiving contracts as small businesses under General Services Administration schedules and found that all of them had grown out of the small-business classification. They received more than $190 million in orders as small businesses in fiscal 2000 and $200 million in 2001, according to SBA.

In another instance, SBA's inspector general investigated 15 Idaho firms classified as Historically Underutilized Business Zone firms and found that 11 of them were either out of compliance with the program or appeared to be out of business entirely.

Many small companies believe they could suffer from abuse and support the rule, but there are diverse opinions on the topic, said Bruce McLellan, executive director of the Coalition for Government Procurement. The coalition has taken no formal position, he added.

"If they're calling for annual recertification, that's onerous for GSA contracting officers in particular," he said, due to the sheer number of small businesses that hold GSA schedule contracts. "Maybe they ought to be looking at this in terms of what the contract vehicles are. It's not as clear-cut as the rule might make it look."

Larry Allen, the coalition's executive vice president, had earlier suggested that recertifying every five years might be more appropriate. "There is a cost and a time factor to recertifying," he said.

However, Diane Bloodworth, founder of Bloodworth Integrated Technology Inc. and chairwoman of the Industry Advisory Council's small-business shared interest group, said annual recertification is not onerous for businesses.

"We think it's positive," Bloodworth said. "It's just a matter of recertifying your size each year. That shouldn't be too burdensome."

In mid-February, anticipating the proposed rule, Office of Federal Procurement Policy Administrator Angela Styles sent letters to the four agencies that manage governmentwide acquisition contracts — GSA, NASA, the Commerce Department and the National Institutes of Health — telling them to begin working on plans to recertify small companies on the GWACs by April 1, 2004.

The agencies have until May 31 to submit an action plan for carrying out the directive. The absence of a clear rule has made it difficult for the agencies to choose the best path, said Victor Powers, director of the NIH Information Technology Acquisition and Assessment Center.

The rule "will give guidance and consistent application throughout the federal government," he said.

Powers declined to speculate on how many businesses on NIH's Electronic Commodity Store III contract might lose their small-business status.

"We don't really know," he said. "In the past, we have had vendors that have been small and they've graduated. We've also had some large vendors become small, due to the economic times."