What makes a small biz?

House bill would kill SBA's annual recertification plan

Jim Cheng, president and CEO of Computer & Hi-tech Management Inc., said annual recertification would hurt government customers.

Laurie DeWitt

The House is poised to consider a bill that could kill a Small Business Administration proposal requiring small businesses to recertify their status annually.

A provision in House bill H.R. 2802, which reauthorizes the SBA, would require recertification once every five years. House lawmakers are expected to take up the bill in late September or early October.

SBA officials in April had proposed annual recertification to address growing concerns that large companies were actually winning federal contracts reserved for small businesses. In some instances, small companies were allowed to retain their eligibility to win small-business set asides for up to 20 years on certain contracts, regardless of how large they had grown over the years.

The SBA is evaluating the 700 comments it received on its proposal before issuing a final rule. The agency has not taken a position on the House bill, said Linda Williams, SBA's associate administrator for government contracting.

Congress and the SBA are not the only federal organizations weighing in on this issue. The General Services Administration late last year began requiring recertification every five years on its multiple-award contracts. But the Office of Management and Budget essentially nullified the new GSA rule in February with a policy change that requires vendors on governmentwide acquisition contracts to annually recertify their small-business size status.

The SBA proposal takes OMB's action one step further, requiring annual recertifications for vendors that receive any multiple-award schedule or other multiple-award contract, including Federal Supply Service schedules.

The House proposal is similar to the GSA's action last fall. The Senate's bill, S. 1375, does not contain similar language.
In addition to the five-year recertification rule, the House bill includes additional leeway for small businesses to grow before they are declared ineligible for set asides.

Companies are allowed to grow up to 20 percent over their revenue size standard or 5 percent over their employee size standard and still retain their status as small businesses for contract option periods, according to the House bill.

Annual recertification would create a cycle in which businesses are small one year, large the next and small the year after, said a staff member of the House Small Business Committee. The House bill allows small businesses to grow out of set asides gradually, the staff member said.

Jim Cheng, president and chief executive officer of Computer & Hi-tech Management Inc. in Virginia Beach, Va., said annual recertification would also hurt government customers.

"You'll be losing contractors you have built up relationships with before the end of the contract," he said. "The administrative overhead, the aggravation of looking for new sources and the loss of corporate knowledge will make it too expensive for government to try to get small businesses. It may actually mean fewer opportunities."

Twenty-three percent of the federal government's prime contract dollars are supposed to go to small businesses each year. According to the House Small Business Committee, the goal was missed for the third straight year in 2002, when 22.6 percent of prime contract dollars went to small businesses. Government officials have said the percentage might even be smaller because it may include work that went to large businesses.

Annual recertification could help the government get a more accurate count of how much work is really going to small businesses, said Ashlea Higgs, senior analyst for Input Inc., an information technology market research firm in Reston, Va.

But Charlotte Harrison said the government already has all the information it needs, because small businesses are required to provide financial statements to the SBA annually.

"The mechanisms are already in place for verification of their true size. The SBA should be using that information to certify size," said Harrison, president and chief executive officer of Millennium Data Systems Inc., a Chicago company that participates in the SBA's 8(a) small-business development program. The firm employs 120 people and last year had revenue of $2.8 million.

"I don't understand what the brouhaha is," she said. "The 8(a) program is set up for small businesses. It is incumbent on people who participate in this program to grow, and that means weaning ourselves from the advantages of being in a protected class. Perhaps a 24-month period for recertification would be better, but not anything longer than that."

Tina Burnette, program manager of the Commerce Information Technology Services Next Generation contract, a multiple-award vehicle for small businesses run by the Commerce Department, suggested one compromise.

If the vendor can't recertify as small after three years on the vehicle, she proposed that contract options would not be exercised, but the vendor could continue work on task orders it had already won.

"There is a lot of cost for the federal government to recompete a requirement. What makes more sense is that the agency can't take the small business credit once they have graduated [to a large business]. That ensures our reporting requirements are accurate," she said.

Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.

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