A Small Business Administration rule change that takes effect today should make it easier for small businesses to win contracts from the federal government.

The change has to do with how the government classifies contracts that are won by small businesses that are later bought by large companies.

Until today, a government agency would be able to count such a contract toward its Congress-mandated goal that 23 percent of prime contract dollars go to small businesses.

Not anymore. From here forward those contracts will be reclassified, and agencies will have to find new companies to help meet their quota.

" There will be a greater effort by the government to seek out new small businesses for contracts," said Gary Jackson, the assistant administrator for size standards at the SBA.

The new rule could mean a gradual transfer of billions in government dollars from large to small companies.

" It is a long time in coming," said Lloyd Chapman, president of the Bay Area-based American Small Business League. "Its about time that the SBA establish a policy that helps small businesses."

A September study of defense contracts by the Washington-based Center for Public Integrity found that 30 percent of all defense contract money reported as going to small or minority-owned businesses between 1998 and 2003 ended up in the hands of large companies.

One of those companies was San Diego-based Titan Corp., according to the center's study. When Titan bought SenCom Corp. in 2000, it also bought $176 million in contracts that SenCom had won as a small business.
Titan spokesman Wil Williams acknowledged the small business contracts held by Titan, but said the rule change will have a negligible effect on the company's bottom line.

Today, the federal government ends a practice that has allowed it to count contracts with large corporations as small-business awards, according to the U.S. Small Business Administration. In the past, when large companies acquired small businesses, the buyers got to keep their new additions' small-business status for the life of its contract with the federal government.

The company now has to immediately be recertified to determine whether it's still a small business, said Gary M. Jackson, assistant administrator for the agency's Office of Size Standards in Washington, D.C. For years, the SBA has added in contracts with these businesses when determining whether the federal government is meeting the goal of awarding 23 percent of contracts to small businesses.

Last year, the government purchased a total of $300 billion in goods and services. Of that figure, more than $65.5 billion went to small businesses. Jackson said he could not estimate how much of this money was going to companies that had outgrown the small-business status.

The nonprofit Center for Public Integrity estimated in September that, because of this special exemption, 30 percent of all defense contract dollars reportedly earned by small businesses and special minority-owned businesses went to the largest defense companies.

Millions of dollars have gone to large corporations, the center said. Since these dollars will no longer be counted toward the contracting goal, many small-business advocates expect businesses that actually meet the size standards to gain ground.

Lloyd Chapman, founder of the American Small Business League and an SBA critic, described the change as a major victory after years of trying to get the agency to change its policies. The elimination of the exemption will not bar a company from working on a contract previously won, Jackson said.

Up until the mid-1990s, federal contracts lasted about one to five years, but today, through multiple-award contracts, they can last anywhere from 10 to 20 years.

A rule change goes into effect today at the Small Business Administration that aims to mitigate problems with how the federal government awards and counts its small-business contracts.

The new rule, in essence, says contracts may no longer be counted as "small business awards" if a small company is acquired by a large one. Each year, Congress establishes goals for most federal agencies, and the government as a whole, for the percentage of business to be awarded to small firms. Overall, the goal is 23%, and while there are no legal ramifications if goals aren't met, there is substantial political pressure to try, and agencies are encouraged to set some contracts for bidding only by small companies.

Recently, however, several studies have shown that some contract awards reported as going to small businesses have actually been in the hands of large companies. One of the main issues cited has to do with federal regulations that have allowed the contracted firm to be considered small over the life of a contract -- even if the company is acquired by a big business.

The new rule requires companies to recertify their size as soon as their contract is officially turned over to an acquiring company. "We felt we needed to make the change to ensure the reporting of what's going to small business is more accurate," says Gary Jackson, the SBA's assistant administrator for size standards.

California: The Small Business Admin. denies it is unlawfully withholding a report about reasons some large businesses are miscoded on federal databases as small and sometimes receive benefits intended for genuine small business.

The response is to a complaint filed under the Freedom of Information Act by the American Small Business League to get the report, prepared for the Office of Advocacy in SBA by Eagle Eye Publishers Inc., a Fairfax, VA, firm that specializes in federal procurement data (MBI, 0411p5).

SBA asks the U.S. District Court for the Northern District of California dismiss the complaint and order ASBL to pay the government's legal costs.

"I am in this to stay," says Lloyd Chapman, president of ASBL, who thinks the report confirms the existence of widespread fraud in federal contracting and SBA is withholding it to cover up the situation. SBA says the report is not completed and will be released when it is.

Paul Murphy, president of Eagle Eye, says he found about 15 different reasons why firms get miscoded but declines to give details until OA releases the final report.