The Small Business Administration's new federal contracting recertification rules took effect recently. Starting June 30, the government began requiring that all businesses with federal contracts coded as "small businesses" be recertified every five years or when acquired or merged with another company. Previously, businesses could go up to 20 years after they received a small-business contract without getting recertified, the SBA says. Some groups, including the American Small Business League, complained a huge portion of small-business contracting dollars were going to large companies. One possible reason: Small businesses tend to grow large after they get federal contracts or acquired by much larger companies.

The SBA says businesses won't lose their federal contracts if they're no longer classified as small due to recertification, but that the new recertification rules will lead to better record-keeping and help the government maintain its small-business contracting goals. In 2003, Congress directed that at least 23% of all prime and subprime government contract dollars should go to small businesses.

"Under these rules, most large businesses credited with small contracts will no longer be counted as small, effective June 30," the SBA says in a release. "Nearly all the remaining large businesses will be scrubbed from the database within a year."

Some groups don't think the new recertification procedures do enough to prevent large businesses from getting small-business contracts. The American Small Business League and the SBA's own inspector general previously called for small-business contracts to be recertified every year. SBA officials say their feedback on that proposal suggested that annual recertification would be too burdensome. The League also says that the five-year certification rule would now allow many large businesses with small-business contracts to keep those contracts until 2012. "The new five-year grandfathering/five-year re-certification policy will now allow the SBA to officially report the miscoded contracts and thousands of other government contracts to Fortune 1000 firms and other large businesses as small-business awards for at least five more years," the League says in a July 2 release

The government as a whole and more than two thirds of agencies failed to meet small business contracting goals last year, according to figures released by the head of the Small Business Administration Friday.

In a teleconference with reporters, SBA Administrator Steven Preston said the figures, while disappointing on some levels, reflected an increased level of transparency and higher standards for data accuracy than in previous years.

"We have a lot of work to do," Preston said. "But we are going in the right direction."

According to SBA's report on fiscal 2006 contracting, a total of $77.7 billion -- or 22.8 percent of all federal contract dollars -- went to small businesses. This was just short of the governmentwide goal of 23 percent. A bill that passed the House in May would increase that statutory goal to 30 percent.

The government overall did meet a subgoal of awarding 5 percent of contract dollars to small disadvantaged businesses. Agencies cumulatively gave 6.8 percent of contract dollars to such companies, according to the report.

SBA also released its first Small Business Procurement Score Card on Friday, which used a traffic light system to measure each agency's compliance with the acquisition goals. Twelve received a grade of red, the lowest score possible.

To earn a good mark, agencies had to reach the 23 percent goal and meet targets in at least three of four socioeconomic subcategories. These were the small disadvantaged business goal, awarding at least 5 percent of all contract dollars to women-owned small companies and granting no less 3 percent of contract dollars to businesses owned by service-disabled veterans or operating in a historically underutilized business zone.

Just seven of 24 agencies met their small business contracting performance standards: the Agriculture, Energy, Homeland Security, Housing and Urban Development, Transportation and Veterans Affairs departments, and the SBA itself.

But the bulk of agencies fell well short of these goals. For example, the Defense Department -- far and away the government's largest procurer of goods and services -- awarded 21.8 percent of its contracts to small businesses and met only the small disadvantaged business goal.

The General Services Administration, which signs prenegotiated contracts for other agencies through its Multiple Awards Schedules, failed to meet its overall small business goal. The agency awarded 32 percent of its contracts to small businesses, but the SBA determined that because of the nature of the agency, the GSA's small business goal is 45 percent.

The House Small Business Committee expressed disappointment in the new figures, saying the failure of agencies to meet the governmentwide 23 percent goal amounted to $5.4 billion in lost opportunities for small businesses.

"Year after year, the federal government has failed to reach their small business contracting goal, and this year is no exception," said committee chairwoman Rep. Nydia Velázquez, D-N.Y., in a statement. "Once again, the government has neglected to take advantage of the innovations and quality products offered by small firms, resulting in billions of dollars that instead went to large government contractors."

Meanwhile, in light of numerous reports that the information used to substantiate the small business figures was inaccurate, the SBA and the Office of Federal Procurement Policy recently asked all agencies to cleanse their 2005 and 2006 data for contracts mistakenly coded as small. The data scrubbing resulted in $4.6 billion in improperly coded contracts, bringing down last year's total from 25.4 percent to 23.4 percent.

Critics suggest there still are many reasons to be skeptical of the SBA's math. Eagle Eye Inc., a Fairfax, Va., research firm that focuses on government spending, recently released data indicating that roughly $82 billion -- or about 20 percent of all prime contracts --went to small businesses last year.

The discrepancy with the SBA's numbers can be attributed to the fact that SBA does not count all federal procurements. Contracts performed outside the United States, including those related to Iraq reconstruction, are excluded. Contracts funded predominantly by agency-generated funds rather than congressionally appropriated money, including acquisitions by the CIA, Federal Aviation Administration and U.S. Postal Service, are also left out of SBA's figures.

Additionally, SBA's report includes contracts held by industry giants, such as Lockheed Martin and SAIC. For years, agencies have been allowed to count as small those contracts originally awarded to small firms that subsequently were purchased by larger companies. Democrats on the House Small Business Committee last year found that $12 billion in contracts that agencies claimed went to small businesses were awarded to some of the country's largest firms.

The SBA, which says that figure is significantly smaller, says a new regulation should remove most of the oversized contractors from the list no later than 2008. The rule, which went into effect June 30, requires small businesses that merge or are acquired to recertify their size immediately. But firms with small business contracts that expand into larger businesses will not have to recertify their size status until the completion of the first five years of a contract.

Preston argues that annual recertification would put an intense burden on both small businesses and federal agencies, which may think twice about awarding a lucrative contract to a business that is on the size status bubble. "This accommodation allows small businesses to invest the way they need to," Preston said.

But that rationale does not fly with Lloyd Chapman, president of the American Small Business League. He has spent the past four years battling SBA to prevent agencies from artificially inflating their small business figures, and plans to file suit this summer challenging the new regulations. He also spent a week in early August lobbying members of the House and Senate to introduce a bill that would prevent agencies from counting contracts held by Fortune 500 companies as small.

"The bottom line is, 'Are these contracts going to small businesses?'" Chapman asked. "And the answer is no."

Source:
http://www.govexec.com/story_page.cfm?articleid=37809&dcn=todaysnews

Businesses with fewer than 20 employees account for 90 percent of all U.S. firms and are responsible for more than 97 percent of all new jobs, according to a new report by the Small Business Administration.

This is just one statistic from a recently published annual report by the Small Business Administration Office of Advocacy based on Census data  from 1988 to 2004, the most recent year available. The detailed figures quantify various indicators among small businesses, including job creation, business births and deaths, industry growth, and regional differences.

One new element this year is the expansion of state specific data, not just for the most recent statistics but also going back to the mid-1990s. "We're able to segment the market by state into urban and rural areas," which gives an indication of each region's impact on the economy, according to SBA economist Brian Headd.

For example, the states with the most number of new firms in urban areas in 2003-2004, included California, Florida, New York, and Texas. In rural areas, the largest growth was seen in Texas and Missouri.

Overall, small businesses grew more in 2003-2004 than in the previous year as a result of an increase in the number of new firms and little change to the number of firm closures, Headd said.

Small businesses also contributed the most in terms of employment. "Job generation by firm size showed that the bulk was from firms with less than 20 employees," said Headd. Those companies accounted for a net 1,626,793 jobs in 2003-2004, 97.1 percent of all new jobs.

However, on the whole, it is hard to track trends by looking at individual years, according to Headd. "I've noticed that year to year change is very small," he said. "The data obviously follows what's going on in the macro-economy."

Certain "hot cities" like Las Vegas and Orlando, have experienced population increases in recent years, and small-business growth in those regions mirrors the overall expansion, Headd said. As another example, when the national economy thrives the average company size tends to increase.

New and existing companies stand to benefit from the data by identifying potential opportunities in specific industries or geographic regions, according to Headd. Researchers might also find the data useful in recognizing economic and regional trends, he added.

"Policymakers can use it to understand what kind of commerce is occurring in their backyard," especially when framing new laws and regulations, Headd said. "This allows them to understand who would be impacted by their actions."

All data can be found on the SBA Office of Advocacy Web site at www.sba.gov/advo.

Source:  http://www.inc.com/news/articles/200708/data.html