Nadler: How small is small?

Small Business Administration’s small-business recertification rule strikes the right balance

SBA's size standards

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The Small Business Administration’s new rule on small-business recertification becomes effective June 30 and will apply to new contracts and solicitations and those in place at that time.

Until that rule takes effect, companies will continue to self-certify their size in any contract proposal that includes a bid price. The designation as a small business applies for the life of a contract, even though the company might exceed the size standard for a small business because it grows or is acquired by or merged with another company before the contract term ends.

The existing rule creates problems because it allows a small business that wins a long-term multiple-award contract to continue to compete against small businesses for task orders reserved for small businesses, even after it has outgrown the size standard for small businesses.

Under the new rule, a small business must recertify its size status or inform a procuring agency if it is no longer a small business, and it must do so within 30 days of a contract’s approval or within 30 days of a finalized merger or acquisition. For long-term contracts of at least five years, companies must recertify their status within 120 days before the end of the fifth year of the contact, and after that, within 120 days before any contract option is exercised. The new rule affects long-term contracts such as General Services Administration schedule contracts, governmentwide acquisition contracts and multipleagency contracts.

SBA wrote the new rule in response to criticisms by small-business advocates that large companies were performing a significant amount of work intended for small businesses. The facts seem to bear that out.

GSA officials had favored a plan that would allow businesses to recertify each year before exercising a contract option. However, under the new SBA rule, companies will be required to recertify any time a small business is acquired by or merges with a large business, regardless of whether it occurs through a stock purchase or an asset deal. Companies will not be required to recertify, however, if the company simply grows beyond the size standard during the first five years of a contract, unless the contracting officer requires recertification for a task order.

Recertification does not affect the contract’s terms, and the contracting officer has discretion in awarding a task order or option year under the contract. However, if the vendor has become a large business, the agency can no longer count that company’s orders or options toward its annual small-business contracting goals. Thus, the company may lose some of those orders and options once it informs the agency that it is no longer a small business.

Some small-business advocates might be disappointed that SBA did not require annual recertification and that large businesses can continue to perform under small-business contracts, particularly during the first five years of a contract.

However, the new rule provides a reasonable approach to a difficult problem and strike the right balance between the competing considerations advanced by the small-business community and the government.

Dave Nadler is a partner in the law firm of Dickstein Shapiro. Contact him at nadlerd@dicksteinshapiro.com.

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