For the first time in more than a quarter century, the Small Business Administration is redefining what it means to be a small business and compete for SBA contract set-asides.
It’s about time.
Over the past 25 years, inflation and the nature of federal contract work have together conspired to render inadequate the old definition — most businesses were capped at $4.5 million to $8.5 million, depending on industry. Now, under new rules released this year, companies in those industries with revenues up to $19 million per year can compete.
Midsize firms, which had been too big to qualify for small-business deals — but too small to compete on an even footing with larger competitors — now have a better chance of winning federal contracts.
That bothers some small firms, which worry their larger rivals will now eat their lunch, but it also should help solve a perpetual problem for federal contract officers, who are supposed to set aside 23 percent of federal contract funds for small-business contracts. They rarely meet those targets.
With more qualifying firms, however, it should now be easier for those contracting officers to reach their goals. Expanding the definition of “small business” will indeed increase the competition for those funds, sometimes at the expense of the smallest competitors. But it’s still better than leaving the set-asides where they were.
Consider, for example, the small business that was skirting its old $4.5 million maximum. Winning one more contract might push it out of the small-business category, an unintended disincentive to growth. The new limits essentially give small businesses more time to grow up before they have to compete on a completely level playing field.
Another worry for smaller businesses is that larger competitors will game the system. Subcontracts and teaming arrangements have long been used to get around contracting rules to win set-asides, whether for small businesses or for minority-, veteran-, Alaska native- or woman-owned firms.
Contracting officers must be vigilant in ensuring that such abuses are identified and punished appropriately.
But when it comes to large contractors that promise to meet small-business set-aside requirements through subcontracting, federal contracting officers often fail to ensure that the contractor follows through and that small businesses are getting the promised share of work.
SBA has proposed rules that would require contracting officers to review whether prime contractors live up to the promises in their subcontracting plans.
The rules should be approved. But agency leaders need to be aware that these additional reviews will not come without a cost. Contracting officers are already legendarily swamped with work, and requiring more from them without adding more personnel is unlikely to have the desired results.