Small-business issues loom large

"[Legislation authorizing SBA programs] is one thing that can really make a dramatic difference," said Randy Slager, president of Catapult Technologies Inc. in Bethesda, Md.

2004 budget debate drags on


The federal budget is top-of-mind for federal information technology contractors in the New Year -- the fiscal 2004 budget, that is.

With the budgets for 11 civilian agencies and foreign operations wrapped up in an omnibus spending bill that has yet to pass the Senate, contractors haven't been able to focus on the president's 2005 budget proposal, which is scheduled for release in February.

They're still fixated on fiscal 2004, which began in October and has been funded largely by continuing resolutions. The result has been status-quo spending and some new work put on hold.

For example, several requirements for Web development and software enhancements coming out of the Department of Housing and Urban Development's Office of Public and Indian Housing are on hold because of the budget standstill, said Michael Boland, a senior analyst at Reston, Va., IT market research firm Input Inc. The requirements are each worth $2 million to $5 million, he said.

Most of the projects probably will receive funding for 2004, but a handful might not, at least in part because of the funding delay, Boland said.

Rhoda Mancher, president of Bethesda, Md.-based IT management consulting firm HW&W Inc., said she's seen requests for proposals put out, then pulled back because funding has not yet been appropriated.

"This has been a very strange year because of the non-budget," she said.

As a result, agencies can't predict how they will spend their money, and contractors can't predict cash flow or what they are going to be doing long term, said Joiwind Ronen, executive director of the Industry Advisory Council, a Fairfax, Va., organization of IT professionals providing products and services to the government.

IT executives said they don't expect the budget to pass Congress until February or March. When funds start flowing, the Bush administration will want to get many high-profile initiatives started or finished, said Morris Zwick, federal sales director of business consulting services for IBM Corp. of Armonk, N.Y.

Those initiatives include 24 e-government projects that are collaborative efforts among several agencies.

"I think we'll see more of those items get pushed to the forefront to show that the administration is making progress on commitments they made," Zwick said.

PUBLIC-PRIVATE COMPETITION

Once the fiscal 2004 budget is in place, issues such as competitive sourcing will capture the attention of IT contractors. Stan Soloway, president of the Professional Services Council, an Arlington, Va., trade group, said he expects the debate about public-private competition of federal jobs will be as vitriolic as ever.

"In an election year, everything becomes about partisan politics. It's impossible to have a reasoned debate," he said.

As soon as new rules for the competitions were published last May, both industry and federal employee unions said that the rules favored the other. But while IT industry groups looked forward to new public-private competitions, federal unions and their congressional supporters began efforts to derail the new rules, saying the Bush administration wants only to outsource federal jobs.

The unions successfully lobbied Congress for several amendments on fiscal 2004 spending bills that restrict public-private competitions. Soloway and other industry executives said they expect the unions will pursue a similar strategy this year.

"It is going to be a pitched battle," Soloway said.

Indeed, union official Beth Moten said that top priority for the American Federation of Government Employees will be protecting federal workers' job security by opposing the administration's "contracting out" agenda.

"We're going to continue to pursue fairness in the contracting arena for our members, and we are going to continue to do that very aggressively," said Moten, director of the union's legislative and political action department.

FAIRNESS FOR SMALL BUSINESS

Industry and government officials are also grappling with fairness in government contracting for small businesses. To ensure that only small companies compete for small-business set-aside contracts, the General Services Administration is requiring recertification of small-business status every five years on GSA governmentwide acquisition contracts.

Previously, small businesses could qualify for this work for up to 20 years, regardless of how large they grew.

However, the Small Business Administration has proposed a rule requiring annual recertification on governmentwide contracts.

"It's a controversial issue," said Linda Williams, who was associate administrator in the SBA's Office of Government Contracting until her Jan. 1 retirement. The agency got more than 600 comments on its proposal. Officials, who haven't decided yet whether one-year or five-year recertification is best, hope to start drafting a final rule early this year, she said.

The SBA also is revamping its standards for defining what is considered a small business. The standards vary by industry and are based either on annual revenue or number of employees.

SBA officials have drafted a proposed procurement rule that would cut the number of standards from 37 to 10, and all 10 standards would be based on number of employees, Williams said. The proposed rule is at the Office of Management and Budget for review, she said.

"People will welcome a streamlined number of size standards," Williams said. "There are too many of them, and ... it's easier to truly measure small businesses by number of employees."

Currently, one of two standards apply to most IT contractors: $21 million in annual revenue or 1,500 employees. Some small-business owners said the $21 million standard has not kept pace with inflation and has pushed companies out of small-business status before they were able to compete in the open marketplace.

Consequently, they were pleased with the SBA's action, saying the change will allow businesses to stay small until they're ready to compete with big businesses.

"This is one thing that can really make a dramatic difference," said Randy Slager, president of Catapult Technologies Inc. in Bethesda, Md.

TOO MANY SET ASIDES?

Just as the 2004 budget bills have been delayed, so has legislation authorizing the Small Business Administration's programs for the current fiscal year. The bill has been held up to let the House Government Reform Committee can examine new procurement provisions that would set aside more work for small businesses. Industry executives said they expect the bill will be a top priority when Congress reconvenes this month.

Some executives said a requirement that all work under $1 million on GSA's schedules be set aside for small businesses would help funnel work to smaller companies; others said the provision could have unintended consequences that hurt small- and medium-size businesses.

Lou Ray said that the provision could help small companies. Ray is selling his business, Matcom International Corp. of Arlington, Va., to a larger firm, SI International Inc. of Reston, Va.

"One of the problems for a small business has always been that when times get tough, the large contractors move down in the scale of contracts and start to squeeze the small businesses [out]," Ray said. "[With set-aside programs], it's like a coral reef. The little fish get in and the sharks can't get them. All small businesses worry a lot about when times get tough and the large businesses come down to prey on them."

But Soloway said that the provision could hurt many businesses that depend on orders that are small in size. He said PSC is trying to work with the House and Senate small business and government affairs committees to ensure they understand the organization's concerns.

Renny DiPentima, president and chief operating officer at SRA International Inc. of Fairfax, Va., said he's also watching the bill closely.

"I would be concerned if there were a lot of set asides under the notion that there were not enough opportunities for small businesses, because it would mean fewer opportunities for a company like mine," said DiPentima, whose company has about 2,800 employees and 2003 revenue of $450 million.

"We'll wind up with less than best pricing or closing out highly competitive firms like my own from competing on important procurements," DiPentima said.

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

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