SBA proposal would promote joint ventures

The Small Business Administration last month proposed waiving the rules that apply to small companies that form joint ventures in order to enable more of them to compete for large contracts.

The plan included in proposed rules revamping the SBA's 8(a) minority business development program would apply to all small firms. The agency is also considering whether to allow these companies to include large businesses on their teams - a scenario that some vendors support as long as the larger company's role is limited.

Bundling Dilemma

The proposal is similar to language in a pending Senate bill that aims to counter a trend toward "bundling" federal contracts. Although there is little conclusive data on the subject many companies and procurement experts cite anecdotal evidence that new acquisition rules are leading agencies to consolidate multiple requirements into catch-all contracts.

"SBA saw the need to change its regulations to provide small businesses with a tool by which they could team together and go after the larger contracts now being lost through consolidation efforts " said William Fisher SBA's acting associate administrator for minority enterprise development.

SBA is taking reports of bundled contracts but Judith Roussel the agency's associate administrator for government contracting said "it's kind of early" to determine how widespread these are.

Over the past year Roussel said SBA has received reports of 70 to 75 acquisitions that had been bundled."If bundling is going to be a matter of practice you need to create new opportunities and new ways small businesses can compete in that environment " said Stan Soloway a spokesman for the Contract Services Association.

Fernando Galaviz vice chairman of the National Federation of 8(a) Companies said a rule such as the one proposed might have led the Department of Veterans Affairs to keep its Procurement of Automated Information Resources Solutions (PAIRS) contract as an 8(a) set-aside.

The VA earlier this year decided to allow large businesses to bid on the procurement which is potentially worth more than $800 million.

Under current rules small businesses often cannot "affiliate" with each other to compete either for large set-asides or for full and open acquisitions because this makes them individually too large to qualify as small businesses. That is because the revenue the team earns from a large contract is counted in a way that can make its members ineligible for subsequent set-asides.

The proposed regulation would waive this accounting practice if a procurement were worth more than half of the small-business size standard for that business area.

For example the size standard for integrators is $18 million in annual revenue so firms could form joint ventures to compete for procurements worth more than $9 million. In cases where the size standard is based on the number of employees such as with computer resellers the procurement would have to be worth at least $10 million.

To compete for 8(a) contracts at least one 8(a) partner in the venture would have to be smaller than half of the applicable size standard and 8(a) companies on the team would have to perform more than half of the work on the contract.

While small firms differ on the level of opportunities available to them through multiple-award indefinite-delivery indefinite-quantity contracts Devon Hewitt an attorney with Shaw Pittman Potts & Trowbridge in McLean Va. said agencies are bundling "standard services" contracts and using blanket purchase agreements through the General Services Administration to consolidate requirements.

Steven Kelman administrator of the Office of Federal Procurement Policy said the joint-venture proposal is "a very important positive step " in part because it gives small companies the same team-forming rights that large firms have.

"Our general approach toward the bundling issue has been to say that in cases where consolidating our requirements is in the taxpayers' interest the appropriate strategy is to proceed with the consolidation - because it is the pro-taxpayer thing to do - and [to] try to take steps to mitigate effects on small businesses " he said.

Unlike the SBA rule the Senate legislation would also waive the affiliation rules for teams that are not joint ventures in the specific legal sense. The Clinton administration supports the intent of the language an official said but it has proposed a change that it thinks would cover more kinds of teams.

But there is a downside to joint ventures. Hewitt said joint ventures "are difficult to maintain" because firms have to agree on common goals and how to manage their work forces and finances. "It's another thing they have to learn."

CSA's Soloway said it is unclear how many joint ventures might result if the rules change. "I don't think anyone knows " he said.