Buy Lines: What's coming at us in 2005?

Here are my top five issues for the coming year.

No. 1: The Small Business Administration's change to the small-business size standards.

I've wondered about the metrics driving each size standard and how SBA determines small vs. large in each industry.

For example, software-reproducing companies and Internet publishers have size standards of 500 employees, while software publishers become large at $21 million in annual receipts. Telecommunications resellers have a size standard of 1,500 employees when most other retailers become large above $6 million in annual receipts.

I question SBA's idea of simply reducing the size-threshold options when economies of scale are changing more rapidly and less predictably. My hunch is we need more sophistication in this system to set the criteria for determining what constitutes the relative size of businesses worthy of government support in each of the 1,152 industries.

Comments are due Feb. 1 at http://www.sba. gov/size/anprm.html.

No. 2: The rulemaking process to add time-and-materials and labor-hour contract types for commercial services. The 100-plus pages of comments to the proposed rule show the disparity of opinion between contractors and the oversight community.

Contractors favor T&M as a way to deliver services without having to factor in the risk associated with a firm-fixed price, especially when the customer can't precisely define the task.

On the other hand, those with fiduciary responsibility for the public purse see T&M and labor-hour contracts as a corporate raid on the treasury by taking the risk of performance off the contractor while providing no incentives to reduce costs.

Rulemakers are grappling with basic questions: What is a commercial service? When is buying service by the hour the best practice? How do we reconcile these contract types with the requirement that half of all services be provided under performance-based terms in 2005?

Under law, services ordered under T&M or labor-hour agreements must be commercial, presumably with prices based on the catalog or market price exemptions from cost or pricing data. As such, industry critics of the proposed rule are rightly asking why it even mentions the cost principles.

But other noncommercial commenters, namely those with overhead rates approved by the Defense Contract Audit Agency, are pushing the commercial envelope when they argue to apply indirect rates to costs of materials under time and materials. Since when do commercial companies maintain indirect rates in accordance with the government's cost accounting standards?

No. 3: The clarification in the Defense Authorization Act for 2005 requiring submission of cost data for noncommercial changes to commercial items where the value exceeds $500,000 or 5 percent, whichever is greater.

I suspect several companies incorrectly claim the exemption to the cost requirements of the Truth in Negotiations Act of 1972, so now is a good time for a compliance checkup in this area.

No. 4: A report on procurement policies and practices at GSA Federal Technology Service Client Support Centers. This report by the Defense Department and General Services Administration inspectors general is due March 15.

According to Section 802 of the Defense Authorization Act, this report will state how well each center is complying with defense procurement policy. Centers that did not make significant progress toward becoming compliant in 2004 will be limited to defense procurements of less than $100,000 per transaction until they get the OK from the respective inspectors general.

No. 5: As of April 30, the Defense Department must approve using non-defense contracts for transactions greater than $100,000, according to Section 854 of the Defense Authorization Act. We'll all be watching to see how this process is implemented.

Steve Charles is cofounder of immixGroup, a government business-consulting firm in McLean, Va. Steve welcomes your comments at

About the Author

Steve Charles is a co-founder of immixGroup, which helps technology companies do business with government. He is a frequent speaker and lecturer on technology and the federal procurement process. He can be reached at or connect with him on LinkedIn at

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