Myths, facts and smoke and mirrors


The Small Business Administration (SBA) has tried to dispel the "myths" surrounding its policy to prevent contracts from federal contracts going to pass-throughs.
The administration, which has been criticised for allocating government buying to large – instead of small – businesses, says that its detractors "incorrectly assume" that a new five-year recertification policy will see them lose out again.
In a statement – titled Is There a 5-year Loophole in New SBA Contracting Rules? – the SBA dispelled rumours that the new policy would allow contracts initially awarded to small businesses that were subsequently purchased by large firms to continue to be counted as small business awards until 2012.
The SBA said that, in reality, there "is no loophole" and that large firms that acquire small companies with existing long-term (five year or more) contracts will be recertified as "no-longer small" and the contracts removed from the small business database within 30 days.
The SBA said the policy prevents federal agencies from taking credit for billions of dollars earmarked for small business that finds its way into the bank accounts of large businesses.
Critics of the administration, including the office products industry’s own National Office Products Alliance (NOPA) and the American Office Products Distributors (AOPD), are in the midst of a heated campaign in Washington to tighten legislation in favour of local dealers (see ‘Fitting the bill’, p 40).
NOPA said that the five-year policy was a "step in the right direction" but was only "one element" of the reform agenda on small-business contracting that the US government needed to tackle.
"Legislation passed by a large margin in the US House of Representatives on 10 May (HR 1873) covers a much broader range of contracting issues," said Chris Bates, president of NOPA, whose team has been lobbying hard on the issue.
"These include the problem of growing federal contract bundling, the need to raise the share of total government purchasing set aside for small business, and weak agency procurement oversight and accountability, among others."
Bates added: "NOPA is now focused on encouraging the US Senate to build upon the approved House reform bill while explicitly addressing the small-business pass-through problem and further strengthening government purchasing oversight and accountability."
Lloyd Chapman, president of the American Small Business League (ASBL) went further, and questioned the SBA’s intentions – accusing the administration of "smoke and mirrors".
"The SBA’s true mission is not to help small businesses, but to help the government," said Chapman. "Our perception is that its policy does more to help the federal government project the false impression that it has hit its small business procurement goal every year than to help small businesses. It consistently refuses to adopt the recommendations of its own inspector general to stop these abuses.
"I think everything the SBA is doing right now is all smoke and mirrors."
Chapman said the SBA "ignored" a recent senate committee hearing that recommended annual recertification, adopting for a five-year recertification policy instead.
The 30-day recertification rule applies to mergers and acquisitions that occurred before 30 June, 2007.
"You can look back at the SBA grandfathering policy that it proposed in 2005 and notice that it is virtually identical to the five-year recertification policy that went into effect on 30 June."
If a large firm acquires a small firm with existing short-term contracts, the contracts will be removed from the SBA’s database when the next option is exercised – within a year in the vast majority of cases.
The new recertification policy prohibits government agencies from claiming small business status for contracts initially awarded to small firms that have since been acquired by a large business, regardless of when that acquisition or merger occurred.
The policy applies to all existing and future long-term (five years or longer) contracts: For example, if a large firm purchased a small firm with a 20-year federal government contract last year, the contracting government agency can no longer count that contract as small.
The policy also applies to existing short-term contracts and requires small businesses to recertify their size status for acquisition or merger. The SBA records more than five million actions in the government’s contracting database each year. As a result contracting officers are being allowed to review short-term contracts as they are renewed annually.
Any acquisition of a small firm by a large company after 30 June this year will cause any small business contracts to be immediately recertified as no longer small. A tiny fraction of short-term contracts may have option periods longer than one year, and the SBA said it will work with other federal agencies on a "case-by-case basis" to identify and recertify these contracts.
Chapman remains unconvinced: "I think when the SBA releases the 2007 small business contacting numbers next year, we are going to see that many of those same large firms that we have seen receiving small business contract awards for the last five years will still be receiving small business contract awards."