SBA Changes the Rules for Small Businesses Seeking Federal Contracts

A week after Democrats reclaimed the Congress, a situation likely to thwart the Bush Administration’s plans to close the embattled Small Business Administration (SBA), the agency on Tuesday announced new regulations and measures intended to help small businesses secure more federal government contracts, while improving transparency and accountability.

The most significant of the measures is a new regulation requiring small businesses to recertify their size status when a long-term contract option is exercised, the business is purchased by or merged with another business or upon completion of the first five years of the contract. A Small Business Procurement Scorecard, which will allow more aggressive tracking and monitoring of small business goal achievement at 24 government agencies, was also announced. Additional procurement personnel will be hired to help identify government contracting opportunities for small businesses and work with the Administration’s Integrated Acquisition Environment initiative to cover federal buying activities more effectively.

“These actions announced today [Tuesday] underscore the fact that the SBA is committed to creating an environment where small businesses can enter the federal marketplace as equal competitors,” SBA Administrator Steven C. Preston said in a statement announcing the new measures. “This environment is created when agencies reduce contract bundling, consider small business as part of their overall procurement strategy, and ensure all agency reporting is accurate and reliable.”

Small Business Certification

The SBA has often been criticized for allowing large businesses to win contracts that should have gone to small business. In part, the problem stemmed from the fact that businesses were certified only at the beginning of the contract and retained that certification for the life of the contract. Given that some long term contracts can last for years, even decades, a company that was small at the time it won the contract may have grown into a big business before the contract is complete.

“We need accurate data on business size,” Paul Denett, Administrator for the Office of Management and Budget’s Office of Federal Procurement Policy (OFPP), said in a statement to the media. “However, small businesses must be given fair opportunity to grow as they perform federal contracts. This rule is intended to strike the right balance between fostering growth and accurate data gathering.”

The SBA’s new recertification regulation was developed in coordination with the OFPP.

“This is something that has been proposed since 2003,” Karen Hontz, counselor to the SBA administrator, told the New York Times. “The rules took time to develop.”

The new regulation does not require a contract be terminated because of a change in size status, however, changes to the contract terms and conditions are required. In June a Congressional study found that, as a result of inaccuracies in the database the federal government uses to track contracts, large companies such as Microsoft, Google and Exxon Mobil, received contracts intended for small businesses, according to the New York Times.

“This regulation will go a long way toward ensuring that contract awards get in the hands of small business owners, federal agencies get the proper credit toward their small business contracting goals and small business contract awards are fairly and accurately reported,” Administrator Preston said. “It is a win-win situation for everyone.”

Small Business Procurement Scorecard

Late in September, the OFPP and SBA issued a memorandum requiring agencies to review their procurement data and identify any necessary changes in an effort to resolve the discrepancies in the Federal Procurement Data System. This effort to clean up the data system was followed by the creation of a Small Business Procurement Scorecard.

“This scorecard is intended to increase transparency and accountability in the small business procurement arena,” said Administrator Preston. “Additionally, it will highlight successes that can be shared between agencies and result in additional ways to engage the small business community.”

The scorecard is modeled after the President’s Management Agenda.

Procurement Staff

The San Francisco Business Times reports the amount of goods and services purchased by the federal government has increased more than 100 percent over the last decade. During the same time, the procurement workforce has declined by 10 percent. This has placed increased pressure on procurement officers which, in turn, has created problems for small businesses trying to compete for federal government contracts. In addition, Paul Murphy, president of Eagle Eye Publishers, a company that tracks federal contracting from their Fairfax, Virginia, headquarters, told the Business Times that many agencies believe allocating a portion of their contracts to small businesses hinders their procurement strategies. The New York Times reports that 23 percent of the federal government contracts should go to small businesses.

“The agency’s rule fails to address the vast majority of this problem,” Representative Nydia M. Velazquez (D-NY) told the New York Times. “Eighty percent of the contracts miscoded were due to other factors than small businesses simply growing too large, which is all this regulation focuses on.”

Representative Velazquez is expected to be the next chairwoman of the House Small Business committee. Senator John Kerry (D-MA), named Chairman of the Committee on Small Business and Entrepreneurship for the 110th Congress, did not directly address the new SBA regulations in a statement to the media regarding his appointment, however, he did say “while 80 percent of America’s businesses are small firms, they aren’t getting the 23 percent of federal contracts they’re entitled to under the law – but somehow Washington has been so upside down that big businesses have obtained nearly $2 billion federal contracts that should have gone to small firms.”

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