SBA Proposal Could Change Landscape for IT Resellers


SBA Proposal Could Change Landscape for IT Resellers

By John K. Higgins
E-Commerce Times
November 17, 2014

Doing business with the U.S. government isalways a challenge. In addition to uncertain budgets, political infighting, andthe seemingly endless procurement terms of the Federal Acquisition Regulations(FARs), there are many other special provisions that come into play in governmentcontracting.

One of them is the small business set-asidepolicy designed to ensure that smaller companies can participate in federalcontracting along with larger companies and multibillion-dollar revenue giants.Federal agencies regularly issue requests for proposals (RFPs) that aretargeted exclusively to small firms. In addition, government contracts awardedto really large corporations often require that small firms get a fair share ofsubcontracting business.

Sounds like a simple solution -- but infederal contracting, nothing is simple and the Small Business Administration(SBA) has a formidable set of regulations covering the set-aside policy --starting with the question of deciding how small is "small" forset-aside purposes. Size standards vary by industry, including the informationtechnology sector.

Information Technology Resellers Targeted

The SBA is proposing to revise the sizestandards affecting Information Technology Value Added Resellers (ITVARs) --companies that provide hardware, software or both, as part of projects thatalso involve installation, systems integration and additional IT-relatedservices to federal agencies.

The hardware and software may be acquireddirectly by reseller firms from different vendors and then passed on to thegovernment within the context of adding value through an equipment and servicescontract package related to a federal project.

The ITVARS proposal is part of a number ofreforms covering many industries that SBA revealed in September in response toa 2010 congressional mandate to update business size criteria. More than 240industrial categories are covered in the proposal. SBA accepted comment on theproposals through Nov. 10.

For the IT resellers category, SBA proposedthat companies with more than US$27.5 million in annual revenue no longer beeligible for small business preferences. Under current standards, federalagencies can offer small business status to IT resellers with fewer than 150employees, even if revenues exceed the $27.5 million mark.

Some advocates for small businesses stronglyoppose the SBA reforms.

"This proposed change is a terriblemistake that would have extreme adverse consequences for many smallbusinesses," said Lars Anderson, an attorney with Venable, in comments tothe SBA on behalf of Wildflower International, a small woman-owned IT reseller.

By using the revenue ceiling, SBA wouldexclude a large number of small businesses from the federal IT reseller market,because many such firms could book federal revenues well in excess of theceiling, but essentially remain small operations in terms of number ofemployees.

"We are looking here at some highlyprofessional, qualified firms that provide efficient IT support to thegovernment with proven track records in terms of federal contract performance-- but they just operate with well under 150 employees, unlike the really bigplayers," Anderson told the E-Commerce Times.

The proposed change would impact smaller firmsunfairly, he contended.

The SBA proposal is warranted because theexisting size standards that involve references to both revenue and employeeshave creasted inconsistencies, confusion and misuse, the administration argued.

Contracting officers are not able to identifysize elements in a government data base, which leads to misunderstandings aboutset-aside goals, the SBA pointed out.

The use of employee counts instead of revenuesmay have negatively affected some small businesses, according to theadministration.

SBA Methodology Questioned

Questions have arisen over the documentationfor the SBA's proposal.

Census Bureau data was not used to tabulatecontract award information related to the 150-employee criteria, the SBAacknowledged.

The conclusion that the revenue standard andthe employee standard were about equivalent was based on 2007 data.

"That 2007 economic census data has norelevance to contracts awarded in 2014," Anderson said in his comments toSBA.

In certain categories specifically relatedeither to hardware or services, small business provisions will continue toapply, noted Lamar Whitman, director of public advocacy at TechAmerica.

However, there is a need for adequatedocumentation on the ITVARs proposal, he said.

"What happens if a firm sells a mix ofhardware and services? This is where the term 'value-added reseller' comes in.The SBA regulations carved out an exception for VARs which allows certainproviders to qualify as a small business if the contract in question iscomposed of at least 15 percent but not more than 50 percent of valued-addedservices, excluding hardware," Whitman told the E-Commerce Times.

As to SBA's rationale for its proposedmodification, "without specific data on the revenue typically generated bya 150-person VAR firm, this SBA argument is not supported," he said.

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Congressman Sam Graves Joins Lloyd Chapman and Charles Tiefer in Opposing SBA

Press Release

Congressman Sam Graves Joins Lloyd Chapman and Charles Tiefer in Opposing SBA

ASBL Leads Opposition on SBA Anti-Small Business Policy

By Lloyd Chapman
American Small Business League
November 14, 2014

PETALUMA, Calif., Nov. 14, 2014/PRNewswire-USNewswire/ -- House Small Business Committee Chairman SamGraves has joined American Small Business League (ASBL) President Lloyd Chapman and Professor Charles Tiefer in opposing a new policy the SBA proposed on Sept.10 that would have pushed thousands of small businesses in theInformation Technology (IT) industry out of the federal marketplace.

The SBA had proposed to remove the 150-employee small businesssize standard for small businesses in the IT industry. If the policy wasadopted, small IT firms with a few as 10 employees could be reclassified aslarge businesses. At the same time the SBA would continue to report billions incontracts to Fortune 500 firms as small business contracts.

The ASBL launched a nationalcampaign to oppose the policy they described as "anti-small business" and retained Professor Charles Tiefer, one of the nation's leadingexperts on federal contracting law, to review the SBA's authority to proposesuch a damaging policy for small businesses.

"This proposed SBA change breaks the law by violatingCongress's statutory intent in the Small Business Jobs Act of 2010,"Professor Tiefer stated in his comment. "The SBA does not give any marketdata or other persuasive reason for the elimination," adding that thisrule does exactly the opposite of what Congress intended and that if adoptedinto a final rule, "small businesses will be squeezed out of the federalmarketplace."

In 2002, Lloyd Chapman launched a successful campaign to oppose the 500-employee smallbusiness size standard in favor of a more industry appropriate 150-employeesize standard when the SBA originally created the category Other ComputerRelated Services under NAICS code 541519.

"I believe the most compelling argument against eliminatingthe 150-employee small business size standard for 541519 comes from the SBAitself. In 2003, after months of research and deliberation in their final ruleon 541519 the SBA stated, 'An employee size standard is considered a bettermeasure of the size of ITVARs operation than receipts since a substantialproportion of their receipts merely reflect the dollar value of equipment andsoftware sold,'" said Chapman in his comment. "That statement was true in 2003 and itis still true today."

On Nov. 10, Congressman Sam Graves submitted a 12 page letter to the SBA agreeing with Professor Tieferand Lloyd Chapman that the SBA did not have theauthorization or the justifications to remove the 150-employee small businesssize standard for Information Technology Value Added Resellers.

In a Gov. Exec. article by Charles Clarktitled, "SBA Takes Flak Over Revising Company Size Standards,"Charles recognizes Congressman Graves' letter and points out that Graves warnedthe SBA of "litigation and a legislative fix" if the SBA does notwithdraw the proposed rule.

"The Proposed Rule violates the express statutory languageadded to the Small Business Act," said Graves. "The Committee urgesthe agency to withdraw the proposed rule… Should the SBA proceed with therulemaking, the Committee will consider appropriate legislative action."

Almost a month prior to the Small Business Committee's letter,the ASBLhad also proposed to consider legislative action, if necessary, by filing aninjunction against the SBA to block implementation of the rule.

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Republican Congress Predicted To Resurrect Regan Plan To Close SBA

Press Release

Republican Congress Predicted To Resurrect Regan Plan To Close SBA

ASBL's Lloyd Chapman To Oppose Republican Plan To Close SBA

By Lloyd Chapman
American Small Business League
November 13, 2014

PETALUMA, Calif., Nov. 13, 2014/PRNewswire-USNewswire/ -- American Small Businesses League (ASBL) President Lloyd Chapman is preparing a nationalcampaign to resist a possible effort by the Republican controlled Congressto try and close the Small Business Administration (SBA).

Chapman believes the Republican Congress will resurrect former PresidentRonald Reagan's plan to permanently close the SBA by combining it with theDepartment of Commerce.

According to the latest data from the U.S. CensusBureau, 98 percent of all U.S. firms have less than 100 employees. Those 28million small businesses are responsible for over 90 percent of the nation'snet new jobs, over 50 percent of the private sector work force and over 50percent of the GDP. The Small Business Act mandates that not less than 23 percent of all federal contracts be awarded tosmall businesses.

"Awarding 23 percent of all federal contracts to smallbusinesses is the most efficient and effective economic stimulus program inU.S. history. Dismantling the SBA and that program would be economicsuicide," Chapman stated.

Former President George Bush Jr.tried to shut down the SBA by starvingthe agency of funds and staffing. The agency was crippled when their budgetand staffing was cut nearly in half.

Bush allegedly told Hector Barreto,who was appointed to head the SBA, that he wanted the agency closed by the endof his first term.

Chapman and Barreto battled in the press over the Bush Administration's efforts to close the SBA and the BushAdministration's policy of diverting billions of dollars a month in federalsmall business contracts to Fortune 500 firms and thousands of other largebusinesses. The SBA survived the Bush Administration and Barretoultimately quietly left the SBA under circumstances that were neverpublicized.

A February 24, 2003 article in WashingtonTechnology reported, "The General Accounting Office began its owninvestigation based on information Chapman provided, said David Cooper, director of GAO's Acquisitionand Sourcing management office."

The GAO investigation uncovered over 5,000 large businesses werereceiving billions of dollars in federal contracts that were being reported asawards to small businesses.

Since that original GAO investigation there have been over adozen federalinvestigations that have found hundreds of Fortune 500 firms that were theactual recipients of federal small business contracts.

NBCCBS,ABCCNN,CNBCMSNBCRTTV and Fox News haveall reported on the diversion of federal small business contracts to corporategiants.

Chapman believes the Republican Congress will attempt to closethe SBA to obscure the hundreds of billions of dollars in fraud and abuse thatfederal investigations and the media have uncovered in federal small businesscontracting programs, primarily at the Pentagon.

"It's obvious the Pentagon is desperate to close the SBA tocover up over 20 years of blatant fraud and corruption in their small businesscontracting programs. I wouldn't be surprised if Senator Burr tries again to lead the Republican assault to close the SBA and kill federal small business programs," Chapman stated.

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SBA proposed size standard change riles small IT resellers


SBA proposed size standard change riles small IT resellers

By Jason Miller
Federal News Radio
November 13, 2014

TheSmall Business Administration is facing rising opposition to a proposed sizestandard for some companies that are IT value-added resellers.

SinceSBA issued the proposed rule inSeptember, which would remove an exception to how these IT VARs are classifiedas small contractors, more than 200 people responded,mostly voicing their opposition to the potential change.

TheSBA wants to eliminate the 150 employee size standard for IT value-addedresellers (IT VARs) under NAICS code 541519. Instead, SBA proposed to use the$27.5 million size standard that applies to the rest of the current NAICS code.

KenDodds, SBA's director of the Office of Policy, Planning and Liaison, saidhaving an employee-based size standard under this NAICS code is inconsistentwith the rest of the 541519 NAICS code, which is based on total revenue.

Hesaid this change is necessary for several reasons.

"Ifwe go ahead and eliminate the exception, these are supply contracts and theywill be subject to all the other NAICS codes and size standards that apply tosupply contracts as well as the non-manufacturer rule, which has a sizestandard of 500 employees," Dodds said in an interview with Federal NewsRadio. "That's kind of the misconception out there. This exception is usedfor primarily supply contracts, and in any other case when you have supplycontracts, you have an employee-based size standard and you have thenon-manufacturer size standard of 500 employees."

Headded most of these companies that could be affected by this change would stillqualify under the 500 employee size standard under the non-manufacturer rule.

Differentways to buy the same thing

Doddssaid there is confusion and concern over this proposal because of theexception. SBA believes the proposed rule will help reduce or even eliminatethe confusion over services versus supplies and where value-added resellers fitin.;articletile=6;pos=left1;sz=300x250;ord=

"We'veheard from businesses on both sides, but certainly businesses that exceed the150 employee size standard that nevertheless can quality for an IT procurementusing the 500 employee size standard," he said. "So basically rightnow as a contracting officer, if you are buying IT supplies mainly, you can usethis exception with 150 employee-based size standard or you can use thecomputer manufacturing NAICS code with 1,000 employees and use the 500 employeesize standard. That's part of the additional confusion out there. The sameprocurement can be bought two different ways and it can basically exclude somefirms from competing depending on what the contracting officer selects."

ITVARs are a big market in the government with companies such as the ImmixGroupor Accelera Solutions or Red River Computer Corp, and many others bringingcommercial products such as a Dell laptop or a Cisco router to the federalmarket and offering additional services such as installation or upgrades ortraining.

ITVARs are big under governmentwide acquisition contracts (GWACs) such as NASASEWP V or other multiple award contracts such as the Homeland SecurityDepartment's First Source and the Air Force's NetCents.

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