Keeping procurement honest

SBA changes rules on small-business listings

To reduce the chances of companies misrepresenting themselves as certain types of small businesses, Small Business Administration officials have changed the rules on how companies are listed in the Central Contractor Registration (CCR) database.

Companies can no longer list themselves as 8(a), Historically Underutilized Business Zone (HUBZone) or small, disadvantaged businesses, said Gary Jackson, assistant administrator for size standards at SBA. Until mid-April, any company could go into the CCR database and list itself as one of those types of businesses.

Companies have always had to meet certain conditions to earn a special status listing, and SBA officials had to certify the businesses' eligibility, Jackson said. But SBA officials had less control over how the listings appeared in the CCR.

"We found instances where companies were saying they were 8(a) firms when they weren't, or HUBZone firms," he said.

Jackson said the controls are still not foolproof. Company officials must enter information about their size and classification. SBA's software will then determine how the business should be listed.

Although it is illegal to falsify information about a company's size, those who provide false information may not be caught unless a competing firm files a protest. Company officials entering data into the CCR are alerted about possible penalties.

Jackson said the penalties, which can include a $500,000 fine, 10 years in prison and debarment from federal contracting, are likely to discourage fraud.

"Certainly the debarment would be life and death for a company that's heavily involved in government contracting," he said.

The rule change is part of SBA officials' larger effort to simplify and improve methods for determining whether companies qualify as small businesses. The CCR is an online portal that small-business officials use to market their companies to agency officials. Agency officials also use it to find small businesses that can meet their needs.

The CCR was originally a Defense Department database. In 2004, DOD and SBA officials began merging the CCR with SBA's Pro-Net. The merger is part of the Integrated Acquisition Environment, an e-government initiative.

Eric Adolphe, president and chief executive officer of Optimus, a small, disadvantaged federal contractor in Silver Spring, Md., said the CCR reform is less important than reforming the system that determines which companies are small. For some industry classifications, the definitions are based on revenue thresholds that have not been adjusted for inflation in three decades, he said.

According to its charter, SBA's mission is not simply to help businesses get started, but to help them expand and grow, Adolphe said. Instead, the current rules tend to find and penalize companies that are succeeding, he said. As they outgrow their small-business status, companies enter an adolescence where they can't benefit from small-business programs but can't compete effectively against much larger firms.

"Those are the real issues," he said. "The changes to the database or reporting system, that's all good," but less important than reforming the foundation of the small-business program, he added.

Thomasina Ivy, president of Milwaukee-based TMI Consulting, said SBA programs' effectiveness suffers when they are not adequately policed.

"You have companies being acquired by large businesses that go on acting as 8(a) or HUBZone for years and years after the acquisition because nobody does the checks," she said.

The latest rule change has long been in the works, said Larry Allen, executive vice president of the Coalition for Government Procurement. "I think this step will be welcomed by legitimate small businesses. If you favor maintaining integrity in the procurement system, you have to favor some sort of oversight. This seems more minimally intrusive than some of SBA's other ideas in this area."

SBA renews resizing efforts

Small Business Administration officials are planning to hold public meetings in June to discuss how to improve their system for determining whether businesses are small and deserve special treatment in federal procurements.

In 2004, they published a notice in the Federal Register in which they made no specific proposals but asked for comments. That notice came on the heels of an aborted attempt to rewrite the size rules. SBA officials had proposed a rule that would have decreased the number of business size categories from 37 to 10, but public concern about several aspects of the proposal was so great that officials withdrew it last July.

Now officials are evaluating the public's comments and planning meetings, said Gary Jackson, SBA's assistant administrator for size standards.

Many small-business owners say reforming the size rules should be the agency's top priority. Eric Adolphe, president and chief executive officer of Optimus, said basing thresholds on revenue is out of step with the modern economy.

"Software contracts went from very low, $1 million-plus in the '70s, till now where an average software contract can be anywhere from $16 million to $30 million," he said.

"A couple of good government contracts will take you to that [small-business] threshold very quickly," said Thomasina Ivy, president of TMI Consulting.

— Michael Hardy

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