SBA: Proposed Size Standards Open For Discussion Many issues are in the “undecided” column as the Small Business Administration begins considering feedback on its proposed revision of size standards. SBA Assistant Administrator Gary Jackson led a discussion of the proposed rule in Washington May 11. Representatives from several industries said they would be badly hurt by the revision because they would lose access to small-business contracts. “What we want to have is a neutral impact,” Jackson said. “We are not out to try to increase or decrease size standards. We’re out to simplify them.” SBA is proposing standards based on the number of employees rather than revenues, with limits ranging from 50 employees to 1,500, depending on the industry. But SBA proposes ceilings on receipts as well as employment in 31 industries, including NAICS codes covering construction and many services; to be classified as small, a company would have to stay below both the employment and receipts caps. In most building construction categories, the caps are 150 employees and $35 million in receipts. For information technology services, limits are 150 employees and $30 million. For most administrative, management and consulting services, limits are 50 employees and $10 million. (SAA, 4/2) Counting Employees Each time a company bids on a federal contract, it would be required to calculate the average number of employees on its payroll during the previous year. Under current dollar-based standards, companies use a three-year average of revenues to determine whether they qualify as small. Jackson said the issue of one-year versus two- or three-year averaging is open to discussion. The proposed standards would count part-time and temporary workers as well as full-timers. Jackson said SBA will consider whether to count employees on a full-time-equivalent basis instead, if a satisfactory counting mechanism can be worked out. Several executives of IT services companies said they prefer that method because they use many part-timers and temps. How Small Is Small? The discussion revealed a clear division between businesses that want highly restrictive standards and those that want the definition of a small business to be more lenient. Arguing for higher size standards, accountant Henry Wilfong Jr., president of the National Association of Small Disadvantaged Businesses, said, “In many industries now, a firm has to beef up in order to compete.” An executive of an IT contractor agreed, saying that in her industry, “once you jump out of [small business status], you are competing with 100,000-employee companies.” Travel industry executives take the opposite view; they want the standards set lower. Travel agencies that can afford the most advanced technology can generate large revenues with few employees, said Patricia Pilego Stout, president of Alamo Travel Group Inc. in San Antonio. She warned that setting limits on employment would encourage companies to outsource work overseas. “Gainers and Losers” Jackson acknowledged that there will inevitably be “gainers and loser” in any revision of size standards. SBA estimates that about 35,000 new companies would become eligible for small-business status under the proposed rule, while about 34,000 would lose eligibility. Overall, Jackson said, there would be a net gain of more than 1,000 businesses qualifying as small. But he acknowledged that SBA did not try to calculate how many jobs might be lost in companies that lose their eligibility for small-business preferences in procurement. “Tell that to the hundreds of thousands of people in unemployment lines,” said Walt Redling, a partner in defense contractor ProcureNet Inc. of Fairfield, NJ. “It’s fine to simplify, but at what cost?” Jackson said SBA’s economic analysis was based on census figures covering all U.S. small businesses. The vast majority of small firms counted by the census have no employees or only a handful, while firms competing for federal contracts tend to be bigger. “We’re trying to look a little more in depth” at the impact on federal procurement, he added. Redling said ProcureNet, with about 175 employees, would lose small-business status under the proposed change in the non-manufacturer standard that covers wholesale distributors (NAICS sector 42). The current limit is 500 employees; SBA proposes lowering the employee limit to 100, the most drastic change in any single standard. The agency said 97% of all wholesalers have fewer than 100 employees. Jackson said SBA proposed the change after hearing many complaints that “500 employees was way too high and benefited companies that shouldn’t be considered small.” SBA’s proposed rule, published in the March 19 Federal Register, is open for public comment until May 18, but Jackson said the comment period is likely to be extended for 30 more days. Comments may be sent to restructure.sizestandards@sba.gov. Jackson said the final rule is many months away.