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CQ: Graves: SBA Rule Change Would Hurt Small Businesses

Congressional Quarterly: Graves: SBA Rule Change Would Hurt Small Businesses
November 19, 2014
By Shawn Zeller

House Small Business Committee Chairman Sam Graves and the Small Business Administration are quarreling again over a new administration move to increase the size of firms eligible for government contracts set aside for small companies.
Graves, R-Mo., wrote this month to Khem R. Sharma, the chief of the SBA’s size standards division, to protest the agency’s proposal in September to allow larger companies in 30 industries to apply for the set-asides.
It would, for instance, set the bar for book publishers seeking small business contracts at up to 1,000 employees, twice the current 500. Companies that extract natural gas or oil could employ 1,250 workers, up from 500.

Graves’ concern is over the agency’s plan to eliminate a special exemption that allows information technology firms with up to 150 workers to win large contracts to advise agencies on their hardware and software needs and to then buy and install the equipment. The SBA would do away with the 150-worker rule and limit eligible firms to $25.5 million in revenue.

SBA says it is changing the rules to adjust to changes in the business world. The IT rule change might help agencies better coordinate IT procurement to ensure government computer systems work well together, a common problem now, by ensuring better-equipped firms get the deals.

But Graves, as well as some advocates for small businesses and the IT firms themselves, say this would hurt many small companies because the cost of computer equipment would be counted against the $25.5 million. For firms with 150 employees and a $25.5 million government contract, “simply paying for supplies and the salaries of employees will cause the company to run a deficit,” Graves wrote, arguing SBA should keep the head-count standard.

The American Small Business League, a California-based group that’s long criticized the SBA for not helping more small companies win government deals, is threatening to sue the agency if the rule is finalized. Lloyd Chapman, the league’s president, says the proposal is “absurd and laughable” and that it would “devastate thousands of small businesses.”

But Sharma notes the agency is merely carrying out the mandate it received in a 2010 law (PL 111-240) to review all of its size standards for small business contracts every five years. The bill was enacted by a Democratic Congress over Republican objections. Sharma notes many of the size standards haven’t been adjusted since the 1970s and are out of step with the current contracting market.
When the SBA moved to increase some of the size standards in 2011, Graves – who’d become chairman of the Small Business Committee that year – objected on the grounds that they would hurt some small firms, and the agency scaled back its plans.

The following year, at Graves’ urging, Congress included provisions in the fiscal 2013 defense authorization (PL 112-239) aimed at making it harder for the agency to raise size standards by requiring the SBA to conduct more comprehensive reviews of the affected industries. Graves contends that the September proposed rule violates that law.

The main trade group for government contractors, the Professional Services Council, says although Graves’ concerns about the change in IT contracting rules may be legitimate, it generally supports the SBA’s efforts. “We’ve felt for a long time that the size standards do not reflect the current market realities for federal procurement,” says Alan Chvotkin, the group’s executive vice president.