Size Makes a Difference in Government Contracting – a BIG Difference

In 2007, the Small Business Administration began the process of reviewing and updating size standards based on industry-specific data. Before this, the last overall review of size standards occurred more than 25 years ago. Under provisions in the Small Business Jobs Act of 2010, SBA will continue its comprehensive review of all size standards for the next several years.

The SBA issued a White Paper entitled “Size Standards Methodology” on Oct. 21, 2009, which explains how the SBA establishes, reviews and modifies its small business size standards. The changes proposed were purported to be in relation to economic growth in the sectors.  However, it seems that the SBA may have missed the mark a little with some of the industry codes (especially IT).

Professional, Scientific, and Technical Services Size Standard: http://edocket.access.gpo.gov/2011/pdf/2011-5876.pdf

Retail Trade: http://www.sbaonline.sba.gov/idc/groups/public/documents/sba_homepage/sector44-45_fr.pdf

As an example, the proposed revisions (and final rules) are increasing the standards for Computer and Software Store (NAICS 443120) from $9M to $25.5M, Office Supplies and Stationery Stores (NAICS 453210) from $7M to $30M, Computer Systems Design Services (NAICS 541512) from $25M to $25.5M… Yes, IT receives a whopping $0.5M increase in the small size standard.  No big deal, you say, because a small business is still a small business and anyone under $25M is clearly a small business.  However, when you take into account the size of the competition, the set-asides for small business are needed as a competitive advantage.

Many small contractors run the risk of being gobbled up by larger companies as they graduate out of the “protection” of being considered small.  In fact, I teach part time and one of my students came to me before class and was talking a little about my background in government contracting.  I came to find out that he and a few of his associates had started a small business that had actually started to take off.  They no sooner graduated from small business status and began competing with large companies and they ended up having to sell out to [Name Removed of Big Government Contractor].  These stories can be found anywhere you look.  Another student mentioned similar types of turnover of ownership in the company that she interns with.  I could go on, but won’t.

With the increased trend toward larger task order contracts, a small business could be one win away from this “graduation” and could be faced with insurmountable challenges of competing with the big dogs.  Mid-sized contractors (“Other Than Small Business”) are becoming increasingly lost in no-man’s land where they are forced to compete with large companies, but unable to compete with small companies.  The plight of the middle size business becomes avoiding acquisition and/or merger.  From there the conversation can turn to lost jobs/innovation because of group think and downsizing because of the M&A process, but let’s try to not to go down that road – no one wants to talk about lost jobs in an economy like this, and certainly innovation is what America is built on…

Now, giving some credit back to the SBA, the changes would allow some small businesses that are close to exceeding their current size standards to retain small business eligibility under higher size standards, give federal agencies a larger selection of small businesses to choose from for small business procurement opportunities and allow small businesses to qualify for financial assistance from the SBA.  That being said, there is still a large disservice being done.  Perhaps it is time for some “medium size” set asides to keep the conglomerates from conglomerating and allow new entrepreneurs and small businesses to reach the full potential rather than being caught in the mergers and acquisitions nets cast by so many of the top 100 federal government contractors.

About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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