Thin is In

With new rules, the SBA hopes to cut big companies from its procurement numbers.
Magazine Contributor
2 min read

This story appears in the April 2005 issue of Entrepreneur. Subscribe »

The SBA is cutting the fat from small-business procurement statistics. The changes would prevent small businesses that have grown large, or have been acquired by big business, from continuing to be counted as small businesses by federal agencies when reporting procurement data.

A study by the SBA's Office of Advocacy published last December found that, of the $54.1 billion in federal procurement funds supposedly paid to small businesses in 2002, $2 billion actually went to big businesses. Among the tubbies was Raytheon Co., which the Office of Advocacy said won small-business contracts worth $126.7 million.

Federal agencies are supposed to work toward a goal of awarding 23 percent of their purchases to small businesses. Thomas M. Sullivan, the SBA's chief counsel for advocacy, says the too-big companies did nothing illegal; they just took advantage of a legal loophole.

The SBA has made one final and one proposed change aimed at sewing that loophole shut. First, the agency said that as of December 2004, large companies that get novated contracts--that is, they acquire small companies that are selling goods to federal agencies--must immediately inform the federal agency's contracting officer. That officer then takes the contract off his agency's small-business tally.

A bigger change would be the SBA's proposed dictate that all companies listed as small recertify their status every five years. The General Services Administration already requires that of small companies who regularly do business with the government; the proposed rule would make the requirement apply to all federal contracts. The rule is expected to be finalized during the first half of 2005.

Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.

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