Employment-Based Size Standards Proposed The Bush administration is considering basing all size standards for small businesses on the number of employees rather than revenues. The Defense Department is pushing the change, said Frank Ramos, director of DOD’s Office of Small and Disadvantaged Business Utilization. An interagency task force made up of Defense, the Small Business Administration and the Office of Management and Budget is considering changes in the size standards that govern eligibility for federal small business programs. (SAA, 4/18) Angela Styles, administrator of OMB’s Office of Federal Procurement Policy and a task force member, said Ramos told the group that if they don’t agree to the proposal, DOD will ask Congress to mandate employment-based size standards – and that President Bush would support the change. Speaking April 28 at a workshop sponsored by the National Association of Small Disadvantaged Businesses in Arlington, VA, Ramos said because of the large size of DOD contracts, successful contractors quickly outgrow the dollar-based standards. Since its major acquisitions are long-term projects, he said, DOD needs contractors and subcontractors to remain officially small for 10 years or more in order for the department to achieve small business procurement goals set by Congress. Under current SBA regulations, size standards in most industries are based on gross receipts; the most common standards range from about $868,000 to $33 million. Size standards are based on the number of employees for wholesalers (maximum of 100 employees) and most manufacturing and mining industries (500 employees). SBA is looking to simplify the size standards but not to increase them, said Fred Armendariz, associate deputy administrator for government contracting and business development. In an interview, he described the current patchwork of 32 different standards as “a cumbersome, convoluted mess.” As to using employees instead of revenues as the criterion for defining a small business, he said, “I can’t disagree with that…Where that benchmark is, we’ll have to work out.” Many small business advocates want the standards increased. The current standards were set in 1994. The dollar-based standards were raised by 15.8% last year to keep up with inflation. Styles said the setting of size standards “seems to be a very arbitrary and subjective process. “Unless you just increase it for everybody, you’re going to have winners and losers.” Styles and Armendariz said they want to eliminate current rules that allow a company to qualify as small in one NAICS code but not in another. Styles said contracting officers cannot keep track of those complex rules. Armendariz said the task force recommendations are several months away. If the group does recommend a change to employment-based standards, it would likely take months to study different industries and decide what number of employees is appropriate to define a small firm in each industry. SBA is also reviewing net worth limits for business owners in the 8(a) and small disadvantaged business programs. Under current regulations, a business owner can qualify for those programs only if his or her net worth is $250,000 or less, not counting equity in the business or a home. Advocates have long complained that the ceiling is too low. Armendariz has questioned whether the value of a home and business should be excluded from the owner’s net worth, since those are often his biggest assets.