We’ve all experienced a difficult friend or boss who tells
you “do this” and then when you do it, they say “no I didn’t mean it that
way.” Then you spend the next hour
trying to undo the thing they told you to do in the first place. Frustrating,
right?
That is largely what the federal government has been telling
small businesses who enter public sector contacting. The message to small businesses is
“grow.” The SBA and its stakeholders
pour significant resources into helping small businesses succeed. Those range from SBA District offices in
every state, lending and counseling programs and support for programs like
ChallengeHER that WIPP sponsors.
Organizations like WIPP encourage their members to think about federal
contracting as a complement to commercial business. We have spent an inordinate amount of
resources promoting policies such as the women-owned small business contracting
program, subcontracting and acquisition strategies designed to provide more
opportunities for the government to buy from women owned firms.
But then, the government says “wait don’t grow” by
implementing a pretty rigid system of determining when a company is too big to
be small. SBA determines its this by a
system called size standards. The
government determines the average size of business revenue in industry
categories and sets a size that a business cannot exceed in order to take
advantage of small business contracting programs. The SBA then takes the average of the last
three years of your revenue, deciding whether you are small or have exceeded
the size standard, bumping you into being a midsize company. Ouch.
This is exactly the position WIPP chair, Lisa Firestone
finds herself in. She testified at a
House Small Business Committee hearing
on the challenges larger small businesses face when approaching the top of
their size standard. Lisa testified on behalf of WIPP, telling her story of
watching her company, Managed Care Advisors go from a small boutique healthcare
consulting company to the leading provider of Federal Workers’ Compensation
Case Management Services. She grew a four person company to facing a daunting
dilemma of growing beyond the $15 million size standard for her industry.
Witnesses at the hearing, “No Man’s Land: Middle-Market Challenges for Small
Business Graduates,” discussed the issue of options available to small
businesses who reach the top of their size standard. Should they stay small, sell their business
or venture into a midsize company that has to compete for government business
with the 110 very large companies.
According to Bloomberg Government’s recent report, Mid-Tier Market
Report: 2018, only 325 companies have made the decision to be a midsize
vendor to the federal government. This
is in contrast to the 118,000 small businesses who sell to the federal
government.
How can this trend be reversed? The Montgomery county Chamber of Commerce, a
WIPP partner in the initiative, “Pathway to Growth” proposes the following
recommendations:
- Agency: Bring Multiple Award Contracts (MAC) requirements in line with the capabilities of midsize firms. It is essential to sustain midsize businesses participation on these MACs to diversify the types of businesses engaging in the federal market.
- Regulatory: Require a five-year look-back for the purpose of Small Business Administration (SBA) size determination. Due to the long contract award process and significant size of task orders, small businesses can quickly outgrow their size standard without having the time and resources to invest in firm infrastructure. This change would allow businesses a smoother transition by changing the receipt calculation by using the lowest three of these preceding five years of receipts, to determine the average.
- Legislative: Deduct research and development (R&D) expenses and expenditures from total revenue for size determination. This recommendation supports the government’s initiative to stimulate innovation and allows companies to pursue and develop new products and processes, without undue penalty.
The execution of these proposals would set the record
straight: small businesses should grow – and continue to grow. It’s time for
the government to end the mixed signals.
