Proposed rule change could hit small IT businesses

A proposed change to Small Business Administration rules governing small IT reseller contractors will have dire consequences for those businesses, a longtime critic of the agency contends.

The proposed changes, announced by the SBA in August, would take away an exemption for Information Technology Value Added Resellers (ITVAR) under North American Industry Classification System rule 541519. Under the proposed change, IT businesses with annual sales of more than $27.5 million would be considered large, and thus ineligible for small business preferences.

SBA contends the change, which is included in a number of other alterations for other sets of vendors, is needed to make the categories more coherent and current. Comments on the proposal are due Nov. 10.

Lloyd Chapman, president of the Petaluma, Calif.-based American Small Business League, contends that the proposed ITVAR changes, would be devastating for small IT resellers that sell to federal agencies -- bankrupting "90 percent of IT value-added resellers" with 150 or fewer employees, and benefitting large contractors in the process.

Chapman has been a harsh critic of the administration's stance on small business policy for years. And "according to this new policy, if you are a small business IT reseller and you use NAICS code 541519 and have revenues over $27.5 million, you will no longer be considered a small business," he said. "At the same time, Fortune 500 companies like Lockheed Martin, Boeing and Raytheon are still receiving small business contracts and credit towards their small business goals."

The move, Chapman said in an interview with FCW, is part of a larger administration effort to fold the Small Business Administration into a consolidated Commerce/Labor Department in an effort to streamline government operations.

Others in the federal acquisition community, meanwhile, said they're still mulling the implications of the SBA's proposal.

While some said there was validity to the notion that the changes might hurt smaller resellers, they also said other resellers that have been successful and outgrown the small business category might be freer to compete in a larger field for larger contracts.

"There is a lot of angst out there," said one acquisition industry official.