SBA makes new rules for value-added resellers

The Small Business Administration has created a new industry category and size standard of 150 employees for information technology value-added resellers, according to a final rule published in the Dec. 29 Federal Register. The new rule is effective Jan. 28.

The new industry category is called "Other Computer Related Services," and has a North American Industry Classification System industry code of 541519. NAICS codes describe what an organization is selling.

Value-added IT resellers sell computer hardware, software and IT services to federal agencies. Previously, the resellers fell under the Wholesale Trade Sector industry category, along with merchant wholesalers, distributors, drop shippers, brokers and agents, and had a size standard of 500 or fewer employees.

The SBA's Federal Register notice said the new category and size standard will better apply small business eligibility requirements under federal contracts that combine a substantial amount of services with the purchase of computer hardware and software.

In its July 24 proposed rule, the SBA proposed moving value-added IT resellers to the new industry category, but recommended retaining the 500 employee size standard. But, according to the final rule, hundreds of comments on the proposal objected to the size standard and caused SBA officials to rethink their position.

According to the SBA, 276 of 291 comments on the proposed rule ? about 95 percent ? opposed the 500-employee size standard, while 12 supported it. The remaining three comments supported a higher size standard or addressed other issues.

Most commenters who opposed the 500-employee size standard recommended a 100-employee size standard, because they said 88 percent of IT value-added resellers have 100 or fewer employees, according to the final rule.

Commenters supporting the 500-employee size standard said it would allow larger small businesses to continue to operate in an industry category after they outgrow other IT industry size standards.

"The SBA agrees that 500 employees is not an appropriate size standard" for value-added IT resellers, the final rule said. "A large number of firms engaged in this activity are much smaller than 500 employees. A business can enter into the ? industry at a relatively small size and grow into a highly competitive business well before it reaches 500 employees."

However, SBA officials did not agree that 100 employees was the right size standard. Based on its review of industry characteristics, including average firm size, distribution of firms by size, startup costs, industry competition and impact of a size-standard revision on SBA programs, the agency said a 150-employee size standard "more sufficiently considers the overall characteristics of the types of firms [that] engage in [value-added IT reselling] activities."