Lawmaker wants to scrap small-business classification system

With a six-page bill, Sen. Claire McCaskill (D-Mo.) would upend the entire federal procurement world.

McCaskill wants to dump the North American Industry Classification System (NAICS) codes system — which she in the past has called “complex and clumsy” and “nuts” — and have the Small Business Administration create an entirely new way to categorize the size of a company and delineate a contract based on what’s being bought.

Under McCaskill’s Fairness for Small Businesses in Federal Contracting Act (S. 1590), the new replacement system could have no more than 20 industries classified in it. It would be based on the most recent market conditions according to the U.S. Economic Census.


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It would also require the SBA to issue new rules within months to close a loophole in law that allows some non-manufacturers to qualify as manufacturers. That loophole enables those companies to win small-business contracts when they should not be eligible, McCaskill said.

“This is really about the government getting its act together and stopping what I would call a huge scam that’s going on,” said the chairwoman of the Homeland Security and Governmental Affairs Committee’s Contracting Oversight Subcommittee.

An investigation by her subcommittee pointed to a flawed system used to determine eligibility for contracts based on a system using more than 1,200 NAICS codes never intended to be used in federal contracting, as well as the ability of businesses to self-select their categories. In a hearing on small-business contracting July 26, the senator used as an example a company that was identified as a manufacturer when it was only selling print toner to the government.

“All this does is skew the numbers in a way that in long run harms small businesses,” she said at the hearing.

McCaskill said the code has to be simplified for people, particularly small-business owners who have to navigate the system if they want to be federal contractors.

“I think everyone is so used to using it in your world that you don’t realize how nuts it is,” McCaskill told a panel of procurement officials at the hearing.

The bill was sent to the Senate Small Business and Entrepreneurship Committee for consideration.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Thu, Sep 29, 2011

It's about time! Does anyone wonder how a company like MicroTech can be BOTH on the FCW Federal 100 list and atop Washinton Technology's Fast 50 list for small businesses AT THE SAME TIME! A $250M small business that's not an Alaskan Native (don't get me started there), but is still in the SBA 8(a) program getting set asides because their NAICS code is a manufacturing one. Exhibit A boys and girls. Pass this low and end this insanity!

Mon, Sep 26, 2011 Hampton Brown Fairfax, VA

In the real world small business have to compete with the big guys. Let's get the government out of the subsidizing business, eliminate the SBA, and setasides. It time to stop socially managing the market and give the tax payer a break!

Sat, Sep 24, 2011

It's about time! As a contracting officer, I've submitted two protests to SBA challenging a supposed SDVOSB's status (in the past year) and both times they were found NOT to be what they self-certified themselves to be. In one case the company was instructed by SBA to change their CCR registration. I checked the other day and low and behold they are still listed as a SDVOSB. What a farse. In the other case out of 14 bidders, only 4 were registered in the vetbiz system. Just let the marketplace do it's job. SBA says they don't have the staff to do things right so why impose things on the procurement community that is basically fraud, waste, and abuse. If SBA, VA, CCR, ORCA, EPLS, and any other verification system can't be trusted, why should we even have them. Self-certification under any NAICS code is so easy to do, you can enter any code you want just to make a vendor list, no accountability whatsoever. This proposal has my vote.

Sat, Sep 24, 2011

Is this the proper way to fix things? What about the extensive studies and thorough examination of the entire process with all the expected pros and cons before attempting to fix the process?

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