Nadler: New size rules fall short

One of the government's most important policies is to provide as many opportunities as possible to small businesses and allot a fair portion of contracts to them. Government officials foster this goal by promoting various programs and setting aside certain contracts for participation only by businesses that fit the Small Business Administration's size standards.

For some time, SBA officials and the courts have been grappling with a loophole in the agency's regulations that allows a small business that has grown large to continue to receive small-business contracts after it has outgrown its size status. SBA officials, under pressure from Congress to meet small-business contracting goals, have contributed to this problem by looking the other way and awarding the contracts to firms that are now indisputably large.

SBA officials missed an opportunity to close this loophole during recent changes to size regulations. The new regulations do not substantially alter the prior rule that a contractor's size is determined by the date when the contractor submits a self-certification of the business' size status as part of its contract proposal. This presents a particular concern with governmentwide acquisition contracts (GWACs) and General Services Administration schedule contracts, given their extended terms. Under these contracts, a large business can continue to compete for small-business task orders or blanket purchase agreements (BPAs) based on a small-business size certification that may have been granted years ago.

Officials at GSA and the Office of Federal Procurement Policy (OFPP) have taken steps to address this problem. GSA officials implemented a Federal Acquisition Regulation requiring small-business owners to recertify their companies' size status every five years, at the time of option renewal under the GSA schedule. OFPP officials went a step further and required annual recertification of vendors on GWACs. SBA's new rule, however, did not adopt the annual recertification requirement OFPP instituted.

Some observers have suggested that annual recertification would make it difficult for small businesses to transition to a larger status and create an administrative burden. Although these concerns may be legitimate, they are not the point.

To allow a large business to masquerade as a small business deprives real small businesses of contract opportunities to which they are entitled. Similarly, allowing government agencies to claim small-business credit for contracts awarded to firms that are actually large misleads Congress and compromises the government's ability to meet small-business contracting goals.

SBA's failure to require annual recertification has left the door open to conflicting interpretations of the recertification requirement for GWACs and permits further mischief on GSA's schedule contracts.

Under the new rule, a large business could continue to receive small-business orders or BPAs under the GSA schedule contract program for up to five years before it has to recertify its size. Because the government's goal is to award 23 percent of its contract revenue to small businesses and the GSA schedule contract program accounts for approximately $13 billion of the federal information technology budget, a significant amount of potential small-business revenue is at stake.

SBA officials should close this loophole and require annual recertification of a vendor's size status to ensure that only bona fide small businesses receive the benefit of that status.

Nadler is a procurement attorney with Dickstein Shapiro Morin & Oshinsky LLP in Washington, D.C.

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