New 8(a) standards not a welcome change

Although women welcome the recent changes to the Small Business Administration 8(a) Business Development Program regulations, newly admitted 8(a) companies will find the market for federal information technology contracts eroding.

In response to President Clinton's initiative to reform government contracting with minority firms, SBA on June 30 issued new regulations governing admittance into the program, now called the 8(a) Business Development Program. The changes relaxed the criteria for admittance into the program, placed monetary caps on contracts awarded under the program, eased the rules whereby small businesses can affiliate with other businesses without being subject to a size-standard protest and created a mentor/protege program.

The old regulations included a presumption that individuals from certain groups were socially disadvantaged. Individuals who were not members of these groups had to prove social disadvantage by clear and convincing evidence. The new regulations changed the "clear and convincing evidence" standard to a "preponderance of the evidence" standard. The change means the standard for admittance was weakened from one of almost complete certainty to a standard based on a majority of the evidence.

In practical terms, an applicant— for example, a Caucasian woman who owns and operates an IT company— who could not previously meet the clear and convincing standard of socially and economically disadvantaged, could now apply for 8(a) certification under the new standard. The weaker standards will encourage every woman-owned business in America that could not join the program under the old rules to submit another application.

SBA estimates that the 8(a) program could double under the new standards. Currently, the program includes about 6,000 companies, of which only about half will receive a federal 8(a) contract.

The change will further split the declining amount of business that 8(a) firms collect from federal government contracts. The government is issuing an increasing number of governmentwide acquisition contracts (GWACs), which contain broad statements of work and include work that previously may have been divided into a number of contracts.

While multiple awards are made under each GWAC solicitation, the awardees tend to be large, established companies. Each awardee has multiple subcontractors on its team. Although some of these subcontractors could be 8(a) companies, the companies may not win work because when a federal agency purchases a product or service off a GWAC contract, it typically competes that requirement among all its GWAC contractors.

Delivery orders issued off GWACs typically require quick turnaround and delivery. Small companies that can't and don't maintain larger inventories won't be able to compete on price and quick delivery.

The government also purchases a large amount of its requirements off federal supply schedules. In schedule contracting, the contractor and the government establish a contract with a predetermined price per item. The contractor must give the government its best price for a particular item, most often computer equipment and related services. The government then orders items from whichever schedule contract best meets its needs.

Typically, a large number of 8(a) contracts covered computer buys. A lot of those requirements are now being purchased quickly and easily off schedules the federal government maintains. This has resulted in fewer 8(a) contracts being awarded for computer buys.

The regulations also limit the number of sole-source 8(a) contracts. Generally, an 8(a) company can receive sole-source contracts that total five times the company's primary size standard or $100 million, whichever is less. Once a company reaches the ceiling, it is no longer eligible for sole-source 8(a) awards.

This rule creates more contractors who compete for the same amount of contract dollars, resulting in less total revenue for each company. At a time when the government is bundling purchases under GWACs, the 8(a) program is creating smaller companies.

While it is a good idea to have more contractors receive 8(a) awards, the timing of the new regulations is wrong. At a time when big appears to be better in federal government contracting, the new regulations could be the death knell for a lot of small businesses in the computer arena. Unless you have a specialty, the new rules will create an even tougher dog-eat-dog world in 8(a) contracting.

-- Kinosky is a partner in the firm Kinosky, Phillips & Lieberman, PLC, Arlington, Va.