Merged Companies Must Recertify Small-Business Eligibility A small business that merges or is acquired must recertify itself as small on all current contracts under a new SBA regulation effective Dec. 21. The recertification does not affect the status of the contract, but allows the agency to determine whether the contract should still be counted toward small business goals. “This new policy will improve upon the accuracy of the federal government’s reporting of small business achievements by requiring small businesses to reaffirm their small business status to contracting officers once it has been acquired by another business,” said SBA Administrator Hector Barreto. Separately, a study for SBA’s Office of Advocacy found that at least 4% of the dollars credited to small businesses in 2002 actually went to large businesses or other entities such as nonprofits or government agencies. SBA’s longstanding policy allows a company that qualified as a small business at the time it received a contract to be considered small throughout the life of that contract. However, the Advocacy study and others found that many companies were still being counted as small after they had been acquired by a large business, inflating the amount of money that was counted as going to small firms. A study by the Center for Public Integrity, a watchdog group, found that more than half of the top 100 defense contractors received contracts with small business designations over the last six years, most often because the large company had acquired a small one. If a company merges, splits, or otherwise changes its ownership, it must alert the contracting officer to accomplish a novation agreement covering any current contracts, according to an April memorandum by the Defense Finance and Accounting Service. Novation is the process of substituting the new company for the old one as a party to the contract. Details are found in FAR Part 4.1102—Policy c(1). The Office of Advocacy’s study, done by Eagle Eye Publishing, found that other loopholes besides mergers and acquisitions can distort small business procurement figures. Eagle Eye reported that 80% of the dollars erroneously credited to small businesses in 2002 were awarded through GSA schedules or other multiple award indefinite delivery, indefinite quantity contracts. The report notes that the vast majority of awards to small businesses under those contracts are not published on FedBizOpps, so there is no opportunity for anyone to file a size protest. GSA regulations require schedule holders to recertify their small-business status only when options are exercised, usually every five years. Eagle Eye found that 39 of the top 1,000 contractors listed as small businesses in 2002 were actually large; five more were nonprofit organizations or government entities such as universities. Taken together, those 44 received $2 billion in contracts identified as going to small businesses, out of a governmentwide total of $50.8 billion. Titan Corp. was by far the largest recipient, with more than $529 million in small-business awards. The earlier study by the Center for Public Integrity identified several small companies that had been acquired by Titan in recent years. Raytheon Co., BAE Systems and Northrop Grumman Corp. each received more than $100 million in small-business awards in 2002, Eagle Eye found. Eagle Eye said errors in coding by contracting officers likely accounted for some of the misinformation. The new Federal Procurement Data System-Next Generation is designed to transfer contract information to central files automatically, reducing the chance for data-input errors. (See story, p. 2.)