Reforms Threaten 8(a) Firms

P> The door is closing on new 8(a)s. Not because of a judicial decision or political attack, but in this instance, because of a collateral blow from a policy change at the General Services Administration.

"The growth in the GSA Schedule will hurt those 8(a)s who don't have a schedule," commented Babielyn Trabbic, president of The Presidio Corp., a $24 million 8(a) reseller in Lanham, Md. Presidio does approximately 50 percent of its business with the government through the GSA Schedule.

Businesses that resell computer products and participate in the Small Business Administration's 8(a) program could lose a substantial amount of business -- especially if they're young and without GSA Schedules.

The notion that 8(a) resellers could lose business as a result of the GSA Schedule's growth says volumes about the perceived advantages of the 8(a) procurement vehicle for government buyers. The desire to aid minority business development may motivate some government buyers.

But Lynn Bateman, president of market research company Government Counseling Ltd., Alexandria, Va., thinks there's a much stronger influence at work. She says government buyers' grade and performance ratings are affected by use of the 8(a) program, so those who do not reach certain goals can be denied promotions and raises.

While such a regulation may motivate many contracting officers to buy from 8(a) companies, one of the chief advantages of the set-aside program for them is ease of purchase. Contracting officers can avoid the lengthy process of publicizing their contracts in the Commerce Business Daily and evaluating competing vendors by formulating sole-source contracts up to $5 million for 8(a)s that qualify as manufacturers or resellers of products. The 8(a) sole-source service contracts have a $3 million limit. Some of the strongest 8(a) companies have targeted agencies with the goal of eventually winning such sole-source contracts. Such contracts have not only benefited the government buyers, they've enriched scores of 8(a)s.

Enter recent procurement reforms. The Federal Acquisition Streamlining Act passed by Congress in 1995 set the maximum amount for a GSA Schedule order without public notification at $500,000 -- up from the maximum of $50,000 previously. The FASA and the limited but growing participation by state and local governments in buying from the GSA Schedule has fueled growth for companies such as reseller Government Technology Services Inc., Chantilly, Va., and manufacturer Dell Computer Corp., Austin, Texas. Both companies reported approximately 300 percent increases in GSA Schedule revenues in 1995 over the previous year.

"The new regulations have changed the equation substantially. Using 8(a)s as a quick way of getting equipment no longer makes sense," said Bob Dornan, senior vice president of Federal Sources Inc., a Vienna, Va.-based market research company.

The procurement changes to the GSA Schedule have pumped new life into a purchasing vehicle, which showed signs of stagnation in the early 1990s. According to Federal Sources data, revenue for the GSA automated data processing Schedule 70 B/C, which covers microcomputer products, accessories and related services, increased 40 percent from $692 million in fiscal year 1994 to $980 million last year. Schedule 70 A, which covers mainframes to minicomputers, increased minimally, from $539 million to $546 million after years of decline when 70 A peaked at $1.8 billion in 1986.

Craig D. Jones, government channel director for personal productivity products for Texas Instruments Inc., Dallas, said, "In 1996 we will spend more time advertising with our GSA Schedule holders" and all advertisements will list the company's eight schedule holders for personal productivity products, which include notebooks and printers. Jones predicted that the GSA Schedule-buying vehicle will increase while 8(a) resellers won't have as much sole-source business. But he said budget uncertainties -- as well as the lull that occurs in government buying between November and January -- have made it too early to measure any changes in government buying habits.

One growing 8(a) has immediate plans to begin selling from the GSA Schedule. Lurita Doan, president of New Technology Management Inc., a $10 million company in Winchester, Va., said she will begin selling high-end Internet products in June. By focusing on technology such as file servers with multiple processors, Doan expects her average sale from the GSA Schedule to be at least $10,000.

Just like in business, many government civil servants value efficiency and low cost. Many government purchasers are not deterred by the requirement that they pay a one percent surcharge, which the GSA began levying Jan. 1 on schedule purchases.

But they do mind dealing with the SBA, which administers the 8(a) program, according to consultant Bateman. "They have to play a funny game with the SBA. When a government buyer notifies the SBA that he wants to contract with a particular 8(a), the SBA might not let them. If they're not in the mood to give you who you want, they'll give you a listing of the 8(a)s that they favor."