Perlowitz: Ease growing pains

The current size standards for small businesses are not keeping up with the government’s contracting needs. As a result, the government and industry are losing out on innovative ideas from small businesses, which face the prospect of quickly outgrowing their small-business classification before they are are ready to compete against much larger companies.

Acquisitions further diminish the pool of small businesses, and the cycle begins anew.

The size standard for information technology contracts is $21 million in revenue, which means small businesses are no longer small after they win about four large contracts or subcontracts. Consequently, small businesses, which typically lack the infrastructure or resources to effectively compete for larger government contracts, find themselves bidding head-to-head with multibillion-dollar international corporations. Contract bundling exacerbates the problem because it leads to larger procurements.

We need to find a solution that supports small businesses in an environment that does not penalize them for success. One approach is to create three levels of classification: very small, small and graduating small.

A very small business would have a maximum of 250 employees or $25 million in revenue. Companies of this size generally do not have the infrastructure necessary to win prime government contracts.

Contracts awarded to companies at this level would count double toward the government’s and prime contractors’ small-business goals, creating incentives for agencies and larger companies to use such businesses.

A small business would be defined as having 250 to 500 employees or $25 million to $50 million in revenue. Its contract dollars would count toward the government’s and prime contractors’ small-business goals.

As a small business grows from 250 to 500 employees, this intermediate level would permit it to develop the processes and financial and managerial infrastructure to successfully compete as a prime contractor.

A graduating small business would be defined as having as many as 750 employees or as much as $75 million in revenue. One-half of its contract dollars would count toward the government’s and prime contractors’ small-business goals.

During the transition from 500 to 750 employees, the company could fully develop its infrastructure until it has the resources to compete for and win larger government contracts. The half-credit allowed during the transition would encourage the use of such companies for both prime and subcontracting opportunities.

By having three small-business classifications, the government would ensure a continuous stream of new companies that can meet its needs, encourage small businesses to grow and drastically reduce the number of small companies that are not prepared to bid on prime contracts when their classification changes.

Perlowitz is founder, president and chief executive officer of Reliable Integration Services, a small woman-owned business that provides network design and implementation and remote managed services to government and commercial customers.