Reality Vs Myths – SBA Changes Small Business Reporting Standards

Reality Vs Myths – SBA Changes Small Business Reporting Standards

The SBA recently made some changes to how small businesses can compete in the federal marketplace, leading to some false beliefs. An examination which clears up some of the false beliefs about the change in Small Business Association guidelines and how it affects businesses trying to do work with the government.

Myth: Small Businesses can’t compete in the federal marketplace because large companies are getting contracts specifically written for smaller businesses.

Reality: Though it is true this has happened in the past, large businesses taking contracts set aside for smaller businesses is not a real factor anymore in the federal contracting arena. A minuscule percentage of contracts get awarded to companies whose size is later challenged – the companies are almost universally on the edge of what is defined as a ‘small business’ rather than the large multi-national corporations. The Small Business Administration (SBA) has adopted regulations which keep such contracts from being considered as small business contracts, helping to make the available figures and statistics more accurately reflect reality.

Myth: Large and multinational corporations are listed in the GSA’s database with small business contracts because they were awarded them.

Reality: There are two explanations for this. The first is that size status is determined at the time a contract is awarded and is retained for the duration of the contract. In recent times, agencies have increasingly been awarding long-term contracts which can extend for as much as twenty years. During that period, it is quite possible that these businesses become larger and no longer fit the small business size standard for their commodities. Small businesses are becoming large businesses during the period of their contracts, making size reporting difficult to implement effectively. Secondly, many large companies have a strategy of purchasing small businesses with long-term contracts, meaning that a contract awarded to a small business may then become owned by a subsidiary of a large business. Until recently, agencies were allowed to count those contracts toward their small business goals despite this fact.

Myth: Nothing has been done to stop such misrepresentation of small business awards, and the SBA has not made it more difficult for larger businesses to attain long-term small business contracts and misrepresent themselves.

Reality: Many steps have been taken to resolve this issue. The SBA implemented a ruling in June that requires companies, large or small, to recertify their size status at the end of the initial contract term (generally five years) and again at every exercising of a contract term extension option, usually between one and five years. Additionally, whenever a small business is bought out by or merges with another business (of any size), it must recertify its size status for all of its contracts, regardless of where they are in the term. Thus, from now on all contracts will be reported as held by large companies if the business holding them has grown past small business size standards or has been acquired by a large company. The SBA has also taken other steps, including increasing its staff working on finding small business contracting opportunities, requiring federal agencies to review any issues or discrepancies with their reported contracting statistics, and starting a “Small Business Procurement Scorecard,” which will monitor and score agencies on their performance on a variety of small business goals.

Myth: This five-year recertification allows agencies to report the tens of billions of dollars set aside for small businesses for large businesses until 2012.

Reality: The new SBA policy explicitly prohibits this. It forbids small businesses that merge or are acquired by large businesses from claiming small size status for all future work, even on existing contracts. This means that as soon as a business is no longer legally considered ‘small,’ all of the dollars used must be reported according to the appropriate size standard. It also limits the time that a small business that expands beyond small standards can report as small to no more than five years – and most to within one year. All of the new SBA policies apply to all existing and future contracts of any term length, so that whenever any event that triggers a recertification need occurs – merger, acquisition, end of a contract term, or exercise of a contract option – the business must recertify itself to whatever size standard is appropriate at that time.

Myth: Small business can be forced to compete alongside large businesses because of the new recertification policies.

Reality: A contract that is set aside for small businesses MUST be given to a business that is certifiable as small at the time of bid submission. These new policies actually protect small business owners from having to compete with larger businesses, because there is now no way for them to acquire small businesses to certify small business status.

Myth: There is no enforcement, and there are no penalties, fines, or consequences for large businesses that get small business contracts.

Reality: If the SBA determines that a business has misrepresented itself about the size standard, they have the right to disqualify a bid and deny the contract. If a business is found to have intentionally misrepresented itself regarding size status in order to get a contract, under Section 16(d) of the Small Business Act, the owners are subject to fines and imprisonment. Companies that lost out on the bid may challenge the size of the winning companies and also file civil suits under the False Claims Act. Additionally, there is proposed legislation that would delay awarding of any contracts that have size standards attached to a certain dollar amount until the size status of the winning bidder is determined and verified by the SBA.

Myth: The SBA will not release information on small businesses awarded government contracts.

Reality: Information and data relating to federal contract awards are readily available to the public through the Federal Procurement Data System – Next Generation. Any person – small business owner or otherwise – may request information or reports through the database operator, the General Services Administration (GSA), if they have difficult finding data or navigating the site.

Myth: The recertification procedures will change the size standards for small businesses and how they are classified as ‘small,’ much like the 2004 proposal.

Reality: This is simply not the case. Small businesses are still determined to be so by the same regulations. The rules regarding size standards have not changed and are still determined by industry – some are based on a maximum number of employees, some are on revenues in recent years, and some are a combination of the two. The 2004 proposal, which did not go into effect, was a broad restructuring agenda that would have made all size standards determined by the number of employees.

Myth: More than a dozen federal investigations in the last six years have reported finding that billions of dollars were diverted from small businesses to Fortune 1000 companies and their subsidiaries across the country.

Reality: There reports almost universally raised issues regarding the accurate reporting of contract dollars that were originally awarded to small businesses – just the sort of thing the new rules were put in place to prevent. This meant that small businesses were the original winners of the contracts but then were bought up by larger companies. Although there are very few occasions where large businesses won federal contracts that had been set aside for small businesses. This was because of a misunderstanding or of a small business not realizing it had grown beyond the size standard. None of the studies suggested that large, multinational corporations competed against small businesses for contracts. The dollars went to the larger companies because the business that originally won the contract was small. The new rules and guidelines that have been put into effect as of June 30, 2007, should prevent any further such problems of misreporting.

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