SBA Proposal Could Change Landscape for IT Resellers
By John K. Higgins
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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