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Annual Recertification Is Debated Again

Set-Aside Alert
September 1, 2006

Small business advocates are choosing sides over a proposal to require annual recertification of size status.

The SBA reauthorization bill that is pending in the Senate, S. 3778, would require contractors to certify their small business eligibility annually. It would also require certification of eligibility at the time a contract is awarded, rather than when a bid is submitted, as in current law.

Lloyd Chapman, president of the American Small Business League and a longtime advocate of tougher enforcement of size standards, welcomed the Senate Small Business Committee's approval of the bill July 28. "The ASBL is gratified that the bill contains provisions to address many of the problems that have allowed billions of dollars in federal small business contracts to be diverted to some of nation's largest corporations," he said in a statement.

SBA's inspector general has recommended annual recertification so agencies would no longer count a contract for small business after the contractor had outgrown size standards or been acquired by a large company.

But other advocates warn of possible unintended consequences. Under current rules, a business that is small at the time it receives a contract is considered small for the life of the contract. If annual recertification was required, the agency could lose small business credit for the contract in later years. In an analysis of the bill, Washington lawyer Pamela Mazza said agencies might be reluctant to make a multi-year award to a growing company that was on the verge of exceeding its size standard.

The requirement for certifying small business status at the time of award is also drawing fire. Mazza warned that a company might outgrow its size standard between the time it submitted a bid and when the award was made, and would no longer be eligible for the set-aside contract. In that case, its bid preparation costs would be wasted.

Her analysis concluded, "Both changes to size certification rules would exacerbate the difficulty mid-sized firms experience when competing with larger firms, and penalize small businesses for their success."

SBA proposed annual recertification three years ago, but has never issued a final rule. Agency officials have said the issue is still under consideration.

Prospects for passage of the Senate bill are uncertain with only a few weeks left in this year's congressional session. Passage by both houses is doubtful, because the House Small Business Committee has not yet marked up its version of the reauthorization bill.



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