Proposed Size Standards Draw Fire Small business advocates are choosing sides over SBA’s proposed overhaul of size standards. Angela Styles, who headed the Bush administration’s procurement policy office until September, declared, “I don’t think there is any doubt that the proposed rule will shrink the number of small businesses providing goods and services to the federal government and will shrink the dollars going to small businesses.” She said the proposed rule would eliminate three-year averaging to determine whether a business qualifies as small. Under current regulations, a company is considered small if its three-year average of revenues or employment falls beneath the size standard; the proposed rule would base eligibility on a single year’s numbers. “Most of my concerns are businesses that are on the edge…that have made very specific plans for the future,” Styles said, noting that a company that is close to the size ceiling could be “small today and big tomorrow.” She participated in a discussion of the standards at an April 23 conference sponsored by the National Association of Small Disadvantaged Businesses at Pentagon City, VA. The proposed standards would measure small businesses by employment rather than revenues, with ceilings ranging from 50 employees to 1,500, depending on the industry. But SBA proposed limits on revenues as well as employment in 31 industries, including construction and many services; to be classified as small, a company would have to stay below both the employment and receipts limits. (SAA, 4/2) “They’re adding bureaucracy on top of bureaucracy and creating additional hurdles for small businesses to step,” said Janice Ogletree of the accounting firm Williams, Adley. Some business owners find something to like about the SBA proposal. Belinda Guadarrama, CEO of GC Micro, an IT firm in Novato, CA, applauds the proposed reduction in the non-manufacturer size standard from 500 employees to 100. That standard applies to wholesalers. “The non-manufacturer rule has just been killing us on the IT side,” she said, because it forced companies like hers, with fewer than 100 employees, to compete with companies having 500 employees. For small IT companies, Guadarrama said, the proposed limits of 100 or 150 employees are “realistic.” But she objects to the receipts cap of $30 million for IT services contractors. “Once you hit 30 million, I don’t think you’re ready to compete with IBM or (Computer Sciences Corp.),” she added. SBA says the receipts caps are intended “to prevent businesses from creatively manipulating their employment levels to remain small,” such as by subcontracting some of their work. Styles believes the proposed standards are based on the assumption that when one company outgrows small business status, another qualified small firm will be ready to step in. She said that assumption is false. She also noted that SBA bases its size standards on the total universe of small businesses. The vast majority of small firms have no employees or just a handful, while firms competing for federal contracts tend to be larger, she said. Styles provided an insider’s perspective on the proposed standards. Before leaving the administration, she served on a working group on the issue along with representatives of SBA and the Defense Department. She said Defense demanded a change to employment-based standards because the large dollar value of its contracts means that a small firm would quickly outgrow revenue ceilings, hurting the department’s ability to reach its small business goals. She said DOD wanted Congress to enact separate size standards for defense contractors, but the Office of Management and Budget insisted on a single set of governmentwide standards. That spurred SBA to rewrite its regulations. Styles said she believes the Defense Department expected SBA to increase the size standards, while SBA had no intention of doing that. “I don’t think Defense realizes that they’re not getting what they want,” she remarked. In fact, SBA is proposing to increase the standards in some industries. The most common dollar-based standard under current rules is $6 million, but all the proposed receipts caps are set higher: $7 million for architectural and engineering services and from $10 million to $40 million in 33 other NAICS codes. SBA said its goal was to simplify the standards, reducing the number of different standards from 37 to 10. Styles described the SBA proposal as “a bad idea” and “streamlining for streamlining’s sake.” She questioned the political wisdom of releasing the new standards in an election year, since they will inevitably hurt some companies. SBA estimates that 35,200 companies would gain small business eligibility and 34,100 would lose their eligibility, for a net gain of 1,110 additional businesses defined as small. But Styles says the result will be different in procurement: “It clearly shrinks the number of businesses that will be able to contract with the federal government in the next couple of years.” Styles said the proposed standards might be killed if enough small business advocates make their opposition known. The proposed rule was published in the March 19 Federal Register and is open for public comment until May 18. Comments may be sent to restructure.sizestandards@sba.gov. (To read the rule, go to www.gpoaccess.gov and click on “Federal Register.”) “I realize most of you don’t have much time to spend on advocacy,” she told the business executives at the conference, “but if you don’t spend time on it, you’re not going to have any contracts.” She warned, “There are not many champions” of small business in the administration, and SBA has “zero power.” Styles is now a partner in the Washington law firm Miller & Chevalier. President Bush’s nominee to succeed her as head of procurement policy, former Capitol Hill staffer David Safavian, was scheduled to appear April 29 at a confirmation hearing before the Senate Governmental Affairs Committee.