Petaluma, Calif. – This week Congress will consider a bill that will allow many of the nations largest venture capital firms and banks to be considered small businesses. Under the bill, titled H.R. 3567 the “Small Business Investment Expansion Act of 2007,” venture capital firms will be given an exemption in federal small business size determination. If the bill becomes law, multi billion dollar venture capital firms and other qualifying financial institutions will be allowed to acquire a small business and retain that firm’s small business status indefinitely for the purposes of receiving federal small business contracts.

 

H.R. 3567 was introduced less than 90 days after the Small Business Administration adopted a policy to close a similar loophole that allowed billions in federal contracts to Fortune 1000 firms to be reported by the federal government as small business contracts. Prior to June 30th, federal policy allowed a large business to acquire a small business and retain that firm’s small business status for up to 20 years. The new SBA policy reduces the re-certification period to five years.

 

The SBA Office of Inspector General, the Office of Federal Procurement Policy and the Senate Small Business Committee all endorsed a policy that would have only allowed large businesses to keep the small business status of an acquired firm for one year. The Small Business Investment Expansion Act of 2007 will allow venture capital firms to acquire a small business and keep that firms small business status until that business breaches the small business size threshold for their industry.

 

 Since 2003, a series of federal investigations and private studies found the Bush Administration had included contracts to firms such as Lockheed, Boeing, Raytheon, Bechtel, General Dynamics, L3 Communications and Northrop Grumman towards the federal government’s 23 percent small business contracting goal.

 

Critics of the new bill see it as another big business promoted loophole that will divert even more federal small business contracts to large businesses. In August, SBA Administrator Steven Preston announced that $77.9 billion in federal contracts went to small business during FY 06, but acknowledged that “old regs” had allowed firms like Lockheed Martin to be considered small businesses.

 

In 2005, the Small Business Administration proposed a similar policy and put it out for public comment. The policy received the largest response to any proposed new policy in SBA history with over 6000 respondents. The SBA generally receives less than 100 responses to similar policy changes. Additionally, 95 percent of the responses were against any exemption for venture capital firms in small business size determination. The SBA dropped the proposed policy. Opponents to the exemption of venture capital firms included local Chambers of Commerce, small business groups, trade associations and individuals from across the country.

 

“It is very disappointing that this Congress would even consider another loophole like H.R. 3567, which will divert even more federal small business contracts big business.” American Small Business League founder Lloyd Chapman said.

 

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