The Small Business Administration announced new rules yesterday intended to help small businesses obtain more federal contracts and to assure that contracts set aside for small businesses are not going to larger companies.

The new rules will require small businesses to recertify their size when they are purchased by or merged with a larger business, or at the end of the five-year point of a contract.

In the past, size has been determined at the beginning of a contract and was retained over the life of that contract.

A company that was small at the time it received a contract would continue to be listed that way throughout the life of the award, which is some cases could be up to 20 years. (A small business is determined by revenue and number of employees. For manufacturers, the threshold is fewer than 500 workers. For the service and retail industries, it is typically $6.5 million in revenue.) This allows concerns that had grown large to compete for small- business set-asides despite their size. The new regulation does not require the government to terminate an existing contract if a company's size changes.

"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," Steven C. Preston, the S.B.A. administrator, said in a statement.

The agency has long been criticized for allowing larger companies to win contracts that are set aside for small businesses. By law, 23 percent of federal contracts are supposed to go to small firms, but several studies have shown that billions of dollars in small-business contracts instead went to corporate giants. A Congressional study in June found that companies like Microsoft, Google and Exxon Mobil were among the recipients of small-business contracts. The report said the contracts were a result of inaccuracies in the government database that tracks contracts.

The S.B.A. said the new rules were not in response to criticism.

"This is something that has been proposed since 2003," said Karen Hontz, counselor to the S.B.A. administrator. "The rules took time to develop."

In addition to the size recertification, the agency also announced the development of a Small Business Procurement Scorecard for 24 federal agencies that will track and monitor the status of each agency's small-business goal achievement.

The S.B.A said it would also hire employees to help identify government contracting opportunities for small businesses.

Representative Nydia M. Velázquez, Democrat of New York, the expected next chairwoman of the House Small Business Committee, said the rules did not go far enough.

The new regulations the Small Business Administration and the Office of Federal Procurement Policy announced Nov. 14 requiring small businesses to recertify their size status have prompted swift – and conflicting – reaction from two business advocacy groups.

The U.S. Chamber of Commerce welcomed the new rules, calling the proposals "important steps toward leveling the playing field for America's small-business owners."

But the American Small Business League said the new regulations would allow the government to continue reporting awards to large companies as federal small-business contracts.

SBA announced this week that small businesses will be required to recertify their size on long-term contracts when a contract option is exercised, when a small business is purchased by or merged with another business, or at the end of the first five years of a contract.

SBA said the new regulation does not require terminating a contract if the small business changes size and does not require changes in the contract's terms and conditions.

The Chamber of Commerce applauded the recertification regulation, saying in a statement that the rule should ensure that more contracts end up in small-business owners' hands.

"Accurate accounting of small-business contracts and a measure of how federal agencies meet their goals are two of our members' biggest concerns," said Giovanni Coratolo, executive director of the chamber's Council on Small Business, in the statement. "We applaud SBA for taking the initiative with these proposals."

SBA and OFPP also announced the creation of a Small Business Procurement Scorecard for 24 federal agencies. Modeled after the President's Management Agenda, the score card is designed to monitor each agency's small-business goals and achievements more carefully.

ASBL President Lloyd Chapman said the SBA regulations "should be evaluated by asking one question: Will this policy allow the government to report contracts to Fortune 1000 companies as small-business awards? The answer is yes, and I'm against it."

Chapman said SBA Administrator Steven Preston and OFPP Administrator Paul Dennett "are being deceptive. This policy was designed to help the government, not small firms."

Starting next June, federal rules will tighten guidelines for how companies can use a small business designation to win government contracts and how agencies can use it to earn credit toward procurement goals.

The new rules represent a win for small businesses, which have been pushing for changes to how they are certified. In addition, the Small Business Administration announced that it will begin rating agencies on their efforts to give small companies contracts.

Currently, a company that wins business either through small business preference programs or other types of competition can keep that designation for the life of a contract. But with the growing use of long-term contracts that range up to 20 years, companies can undergo major changes that allow agencies to claim credit for working with a small firm even if the business has, for example, been bought out by a Fortune 500 company.

Under the new rules, published by Small Business Administration in a Wednesday Federal Register notice, contract-holders that are registered as small will have to recertify their size status any time they buy another company, are acquired by a company, or merge.

Recertification also will be required after five years of a long-term contract, and thereafter whenever an option is exercised or an order is placed against any multiple-award type contract.

The process will not affect contract terms and conditions, and agencies will be able to continue doing business with providers that have outgrown their small status. But they will not receive small business credit for such spending. The new process will apply to all contracts, including those signed before the rule change takes effect.

"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," SBA Administrator Steven Preston said in announcing the rule change.

Some small business advocates had called for companies to recertify annually, and SBA's proposed rule -- first released for public comment in April 2003 -- initially supported that approach. But the agency received comments that an annual requirement would place a heavy administrative burden on small businesses.

Some advocates also have expressed concern that annual recertification would undermine one of agencies' key incentives in hiring small firms. Agencies work toward a governmentwide goal of awarding 23 percent of contracts to small companies. If companies are evaluated annually on size, agencies could run the risk of losing their credit shortly after a contract is signed. They also might be reluctant to renew the award of a company that has performed well, but outgrown the contract.

Paul Denett, the head of procurement policy at the Office of Management and Budget, said, "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."

Rep. Nydia Velazquez, D-N.Y., ranking member of the House Small Business Committee, said SBA's new rule does not address the problem of ineligible entities coded as small businesses. In July, she published a report indicating that some of the groups labeled as small businesses were large, long-established companies, universities, and even state and local government agencies.

SBA reported that 25.4 percent of federal prime contracting dollars went to small businesses in fiscal 2005, but Velazquez contested that figure, claiming the rate was actually 21.6 percent, and therefore short of the 23 percent goal.

On Monday, SBA also announced a new score card that will rate agencies on their small business contracting in the same traffic-light style used by OMB for quarterly President's Management Agenda grades. The SBA score card will cover 24 agencies, and will be released twice a year, with ratings for both accomplishments and progress.

SBA already collects data small business contracting data from agencies, said Calvin Jenkins, an agency official who worked on the rating tool. In addition to comparing agencies' performance to their individual goals in programs such as those for women-owned businesses and companies in historically underutilized areas, the ratings will factor in an agency's data accuracy, top-level support for small business contracting, success in breaking up large contracts so more companies can participate, and the establishment of an effective subcontracting plan, Jenkins said.

Hounded by charges that the U.S. government overstates the amount of federal contracts that go to small ventures, the Small Business Administration unveiled a plan Tuesday to eliminate loopholes that have allowed large corporations to be counted as small contractors.

The centerpiece of the effort: regulations requiring companies to recertify they are small after every merger or company acquisition, or five years into a long-term contract.

The changes are particularly relevant in Florida, where 98 percent of all companies are small and examples of large corporations squeezing through those loopholes abound. For example, from 2001 to 2004, Tampa's Safety Equipment Co. received millions of dollars' worth of small-business contracts even though it had been bought by Fisher Scientific -- a Fortune 500 company with more than 17,500 employees and annual revenue of almost $5 billion.

Under previous rules, this was perfectly legal. Companies could keep their small-business status for the life of a deal -- often up to 20 years -- even if they were later swallowed up by a larger corporation or outgrew the size limits for their industry.

Under the new regulations, effective June 30, Safety Equipment would have been required to declare its new size when it was bought by Fisher in 2001.

The new rules will not strip small-business contracts from companies that have grown too large, but would bar the government from counting such deals toward its annual goal of channeling 23 percent of all federal dollars to small ventures.

"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," SBA Administrator Steven Preston said in a statement. "It is a win-win situation for everyone."

But some small-business advocates said the rules don't go far enough.

By establishing a five-year window before existing contractors have to recertify their size, the government is giving a pass to large companies already performing small-business contracts, said American Small Business League President Lloyd Chapman.

Chapman's group has been pushing annual size recertification, a recommendation first proposed by the SBA's inspector general's office a few years ago.

"This is smoke and mirrors," said Chapman of the new regulations. "It allows large corporations to keep small-business contracts for five more years."

Along with closing those loopholes, the SBA said it will also institute a Small Business Procurement Scorecard to "more aggressively track and monitor" contracting at 24 federal agencies, and hire additional personnel to identify small-business contracting opportunities.

A Miami Herald review of federal contracts performed in Florida during fiscal year 2004 found that more than half of the state's top 20 small-business contractors were actually large corporations with more than 500 employees. Some had started off small and grown large on the back of lucrative contracts, while others had been absorbed by larger companies.

Nationally, the rules were problematic, too, creating embarrassing anomalies where corporate titans such as Bechtel and IBM would appear on the government's list of small-business contractors.

PETALUMA, Calif., Nov. 15 (UPI) -- A small business advocacy group claims a new U.S. Small Business Administration policy merely hides the agency's largesse to giant corporations.

The American Small Business League said Wednesday that a new policy proposed by the SBA and the Office of Federal Procurement Policy "will allow the government to continue reporting awards to large companies as federal small business contracts."

Even though the SBA's inspector general has urged the agency to implement annual recertification of business size status to prevent fraud and abuse in small business contracting, the SBA has consistently refused to implement it, said the ASBL's president, Lloyd Chapman.