California Considers New Business Classification Contract service provider classification would make federal contracts more accessible to small business, say proponents

By Devlin Smith

Opinions expressed by Entrepreneur contributors are their own.

The California State Assembly is currently consideringlegislation to create a new business classification that would makeit easier for small businesses to contract with the government andother firms: contract service provider. "The CSPclassification will establish a clearly identifiable[small-business] and microbusiness category whose contracting withgovernment and other firms would not be confused with individualswho have not formed a business enterprise," says Brenda St.Hilaire, public policy chair for NAWBO-OC, a women-owned businessadvocacy group that, along with other NAWBO-Californiachapters, introduced the bill. "In short, the contract serviceprovider classification provides a safe harbor for business ownersengaged in business-to-business relationships."

According to St. Hilaire, there are antiquated labor andemployment regulations on the books that fail to distinguish smallbusinesses from independent contractors. "California'slabor regulations define working agreements between largercompanies and smaller enterprises not as contracting arrangements,but as independent contractor or employer/employeerelationships," she says.

Distinguishing between independent contractors andsmall-business owners is a problem all over the United States,including at the federal level, says St. Hilaire. NAWBO-Californiahopes its efforts at the state level will prompt action in otherstates as well. According to NAWBO, more women currently own or arestarting their own businesses in California than in any otherstate, and if passed, this legislation could benefit about 800,000women-owned businesses in the state.

If adopted, A.B. 1643, which is currently pending in theAssembly Committee on Labor and Employment, small businesses couldbegin benefiting from the new classification on January 1, 2004."The freedom to subcontract, partner and/or create teams forthe purpose of pursuing more significant projects is undermined byfear and uncertainty associated with the application of existinglaw," St. Hilaire says. "Such an atmosphere does notpromote the business vitality and expansion that California'seconomy needs today."

To qualify as a contract service provider, businesses need to beat least two years old, be certified as a small-business entityand/or have paid the requisite business taxes, and have been issueda state business license.

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