FEDERAL CLASSIFICATION: Big deal for small businesses


FEDERAL CLASSIFICATION: Big deal for small businesses

By Carrie Mason-Draffen
September 22, 2004

Small businesses take their size seriously.

So when the U.S. Small Business Administration proposed redefining what constitutes a small business earlier this year, the plan set off a wave of protest. Even when the agency announced in July that it was halting those plans, that drew protests, too. The reactions underscored just how coveted the status of small business can be.

The debate revved up Monday, when the American Small Business League, a 2-year-old group in suburban San Francisco, accused the SBA of being an advocate for large corporations. The group has taken aim at the SBA's decision not to drop the employee cap for a nonmanufacturing small-business designation to 100 employees from 500, where it has stood for years. Other caps vary according to industry.

" To keep the size standard at 500 benefits a very small number of super small businesses," said the group's president, Lloyd Chapman. "It's damaging to the 23 million small businesses with less than 100 employees."

An SBA spokesman said the agency decided against the changes because of overwhelming opposition to them. Spokesman Michael Stamler stressed that the SBA "is still working on the size standard."

At stake are the billions of dollars in goods and services the federal government buys from those it has certified as small businesses. The government sets aside 23 percent of such contracts for small enterprises.
The SBA currently uses 37 categories to determine if a business is small. It wanted to slash that number to 10, using the number of employees as an indicator of a company's size rather than a combination of head counts and receipts as the current system does.

In its proposal, published in the Federal Register in March, the agency maintained that the number of employees is a more stable indicator of a company's size than receipts.

Rep. Nydia Velazquez (D-Brooklyn), the ranking member of the House Small Business Committee, opposed the changes.

" If SBA went ahead and adopted the new regulations, we would have shrunk the number of small businesses eligible to participate in government assistance programs in terms of federal contracts and business loans," she said.

Under the proposed changes, any restaurant with more than 50 employees would have been designated a big business, she said. "That covers most [restaurants] in New York City," she said.

Local business owners, however, are split on the SBA's decision to abandon the changes.

Edward Fred, president of CPI Aerostructures in Edgewood, said dropping the employee cap to 100 could be devastating for his business, a manufacturer of replacement parts for military aircraft. His company employs 66 employees and has $30 million in revenue, all from government contracts.

If we grew to 101 employees, "we couldn't compete in a small arena," he said, "and all of a sudden we're competing against Lockheed."
On the other hand, Lina Gottesman, president of Altus Metal and Marble Services, which restores the fronts of buildings and has offices in St. James and Manhattan, wants the classification changed.

" I think it would take some of the big guys out that are getting an advantage that shouldn't be getting the advantage," she said.

Copyright © 2004, Newsday, Inc.

SBA Ignored Overwhelming Comments on New Size Standards

Press Release

SBA Ignored Overwhelming Comments on New Size Standards

Documents Reveal Overwhelming Support for New Definition of Small Businesses -- SBA Report Was Wrong

September 13, 2004

The Small Business Administration's decision in July to halt the reform of federal size standards that define which American businesses are "small", was 180 degrees wrong, documents show.

The result: Flawed rules that determine eligibility for $100 billion in government small business contracts remain in place, despite an outpouring of support for change.

Documents just obtained through the Freedom of Information Act show that more than 2,500 comments received by the SBA were in favor of lowering the basic size standard for a small business from 500 employees to 100 employees, and fewer than 30 were opposed. Yet the SBA had announced on July 1 that most responders were against changing the standards, and that therefore it was suspending the process. In fact, almost all of the negative comments received by the SBA were directed at other aspects of its 86-page proposal.

" This is an outrageous deception that cheats thousands of legitimate small businesses out of $50 billion a year in government contracts and thwarts the intent of Congress," said Lloyd Chapman, president of the American Small Business League (ASBL). "The SBA should be protecting small businesses, but instead its deceit is helping large corporations and hurting the small companies that are vital to America's economy."

Current rules generally allow companies with up to 500 employees to be classified as "small" and eligible for government contracts set aside for small businesses. The SBA sought comment on an array of changes it proposed in March 2004. The proposal to lower the small business size limit to 100 employees would increase opportunity for 24 million small businesses in the country to win government contracts. "Big corporations with 495 employees are not small businesses in anybody's eyes except the SBA's," Chapman said. "This needs to be fixed."

Comments in favor of reforming size standards came from small businesses across the country, according to the documents kept secret by the SBA but made public following ASBL's Freedom of Information Act filing.

  • "I AGREE with the proposed changes! I am a VERY small business and I have found the existing standards to be a farce," wrote Melina Hansher, principal geologist of Value Environmental Services of Largo, Florida. "…I am tired of trying to compete with so-called 'small businesses' that have multiple offices and more employees than we have voters on Election Day."
  • "As a small high-tech firm we noticed a recent influx of apparently large businesses participating in the small business innovative research (SBIR) program during the past 2 years … These companies are able to push smaller and often more innovative companies out of the competitive arena," wrote Scott Thompson, CEO of RealTronics Corp. of Rapid City, South Dakota. "It is my sincerest hope that you will adopt the proposed ruling to restructure the size standard for small businesses to a cap of 100 employees."
  • "98% of firms in America employee 99 employees or less. These are the firms that Congress intended to receive federal contracts and sub-contracts," wrote Anthony Grimm, president of the Berks County Chamber of Commerce in Reading, Pennsylvania. "…We specifically support proposed changes that would revise the non-manufacturer size standard applicable to Federal procurements from 500 to 100 employees."
  • "I am the owner of a small aerospace engineering and information technology company. I wholeheartedly agree with the proposal to revise the non-manufacturer size standard applicable to Federal procurements from 500 employees to 100 employees," wrote Dr. George W. Davis, president of Emergent Space Technologies, Inc., of Laurel, Maryland.

The American Small Business League will renew its efforts to reform small business size standards this fall.