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Small to Mean Small in Contracts

The Wall Street Journal
December 21, 2004

A rule change goes into effect today at the Small Business Administration that aims to mitigate problems with how the federal government awards and counts its small-business contracts.

The new rule, in essence, says contracts may no longer be counted as "small business awards" if a small company is acquired by a large one. Each year, Congress establishes goals for most federal agencies, and the government as a whole, for the percentage of business to be awarded to small firms. Overall, the goal is 23%, and while there are no legal ramifications if goals aren't met, there is substantial political pressure to try, and agencies are encouraged to set some contracts for bidding only by small companies.

Recently, however, several studies have shown that some contract awards reported as going to small businesses have actually been in the hands of large companies. One of the main issues cited has to do with federal regulations that have allowed the contracted firm to be considered small over the life of a contract -- even if the company is acquired by a big business.

The new rule requires companies to recertify their size as soon as their contract is officially turned over to an acquiring company. "We felt we needed to make the change to ensure the reporting of what's going to small business is more accurate," says Gary Jackson, the SBA's assistant administrator for size standards.

One advocacy group pushing for the change was the American Small Business League, a trade organization in Petaluma, Calif., which says that implementation of the new policy will help shift billions of dollars in new federal business to small firms. "Federal agencies and prime contractors can no longer use big businesses to hit their small-business goals and that will help open up the market for small businesses," says Lloyd Chapman, president of the ASBL.



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