SBA decides size really does matter
By Ambrose Clancy
Long Island Business News
April 20, 2007
It’s all part of a Small Business Administration effort to figure out if small businesses are really getting their fair share of federal contracts. While the SBA tries to steer about a quarter of federal business to small business, an estimated $12 billion in contracts has apparently been going to large corporations mistakenly identified as small businesses.
New SBA rules that go into effect June will require small companies with federal contracts to recertify their size and inform the SBA if the small business is purchased or merged with another business.
The rules stem from a little political bickering between the Bush Administration and Democrats on the House Small Business Committee. While Bush staffers trumpeted that small businesses had received 25.3 percent of total federal contracts issued in 2006, the Dems argued that the figure was actually only 21.5 percent when you factor in “miscoding” that gives large corporations small-company status.
A chief culprit: large fish gobbling up small fish through mergers and acquisitions, then holding onto federal contracts earmarked for the small businesses, according to SBA critics.
Lloyd Chapman, president of the American Small Business League and a longtime SBA critic, said standard operating procedure has been no oversight at all.
“For example, a small company gets a contract to provide office furniture for a federal agency, and the next day they’re bought by some big box outlet,” Chapman said.
The SBA got the message. In November, the administration announced the new regulations would kick in at the end of June, according to SBA spokesman Mike Stamler.
The government defines small businesses as manufacturers with up to 1,500 employees, wholesalers and distributors with up to 100 employees and service industry businesses that take in up to $30 million over three-year periods. Under those guidelines, there are 90,000 small businesses on Long Island, according to Sol Soskin, a director at the Long Island Development Corp., which helps arrange loans for small businesses. Soskin had no data on how many had federal contracts.
Norman Hunte, manager of SBA’s Long Island office, said the new policy “is a good thing.” He referred other questions to Stamler, who said critics were correct when they suggested big companies looked for small, connected companies with lucrative federal deals.
“Fortune 500 companies have acquisition strategies based on acquiring small businesses with long-term federal contracts,” Stamler said.
There are still plenty of cases where small companies become large through fair and simple growth. The five-year recertification will not necessarily mean existing contracts will be voided, Stamler said, but at the end of their run or when an option is due, deals will be reevaluated.
The House Small Business Committee, under a Democratic majority since January, will highlight miscoding in public hearings next week in New Orleans, according to committee spokeswoman Austin Bonner. The committee will look into further “reforming federal contracting practices,” Bonner added.
Lisa Dolan, president of Queens-based Securit, a private investigation and security company with 88 employees and federal contracts, was unaware of the new regulations, but considers them a good move.
“I’ve seen many times where they say they’re small, and when the government gets around to doing their homework – if they ever do – they find they’re huge,” Dolan said.
Still, the arduous paperwork and red tape is worth the time investment, according to Dolan.
“If you’re not involved with the government,” she warned, “the government will run your business.”