SBA Drops Annual Re-Certification Bowing to pressure from inside and outside the government, the Small Business Administration scrapped its proposal to require annual re-certification of small business eligibility. In a final rule issued Nov. 15, SBA said contractors must re-certify their size status at least every five years on GSA schedules and other long-term contracts. But the incoming chairman of the Senate Small Business Committee, Massachusetts Democrat John Kerry, opposes the rule. “I know five years is too broad,” Kerry told reporters Nov. 16. He said he will seek a compromise between one-year and five-year re-certification. The Senate committee voted for annual re-certification in its SBA reauthorization bill, S. 3778. Kerry and the outgoing committee chair, Maine Republican Olympia Snowe, supported the bill, but it will not come to the Senate floor until next year. (SAA, 8/11) SBA said five-year re-certification is “the least burdensome and fairest approach.” Administrator Steven Preston declared, “This regulation will go a long way toward ensuring that contract awards get in the hands of small business owners, federal agencies get the proper credit toward their small business contracting goals and small business contract awards are fairly and accurately reported.” Re-certification will be required when an option is exercised after the first five years of a long-term contract and every time an additional option is exercised. GSA is already doing this on its schedule contracts. Contractors also must re-certify their small business status if they are acquired or merge. SBA said contracting officers may – but are not required to – request a size certification on each task and delivery order. A company that no longer qualifies as a small business will not lose its contract, but the agency loses small business credit. “In sum, a change in size status for reporting purposes will not affect in any way the terms and conditions of the initial contract,” SBA said. It acknowledged that agencies may choose not to exercise an option if they would lose small business credit, but added that would open the opportunity for another small business. On April 25, 2003, SBA proposed a rule requiring annual re-certification of size status. Currently, if a business was small when it bid on a contract, it is counted as small for the life of the contract. But SBA said the growth of contracts lasting up to 20 years with options, such as GSA schedules, allowed agencies to continue to claim small businesses credit long after the business had outgrown its size standard or been acquired by a large corporation. SBA’s inspector general has also recommended annual re-certification. Many small business advocates and several agencies objected that it would be unduly burdensome on both government and industry. In issuing the final rule, SBA said: “After consideration of the comments and consulting with the various procuring agencies, including GSA and DOD, SBA has been told that the agencies do not have the resources to request, receive and process the expected influx of size certifications every year. In addition, many small businesses submitted comments suggesting that an annual re-certification requirement would not give them sufficient time to recoup proposal costs or to conduct long-range strategic planning.” Although Administrator Preston called the final rule “a win-win situation for everyone,” not everyone agrees. Lloyd Chapman, president of the American Small Business League, said in a statement: “”This policy should be evaluated by asking one question: Will this policy allow the government to report contracts to Fortune 1000 companies as small business awards? The answer is yes and I’m against it.” SBA’s inspector general and the Government Accountability Office have documented that many large businesses were counted as small in the official records of the Federal Procurement Data System. Chapman maintains many companies are fraudulently claiming small business status, but SBA officials have denied any widespread fraud and said the faulty data is partially the result of companies outgrowing their size standards during the life of a contract. The incoming chairwoman of the House Small Business Committee, New York Democrat Nydia Velazquez, said, “The agency’s rule fails to address the vast majority of this problem. Eighty percent of the contracts miscoded were due to other factors than small businesses simply growing too large, which is all this regulation focuses on.” An investigation by committee Democrats found widespread evidence of data-entry errors that listed companies such as Wal-Mart and Rolls Royce as small businesses. “We need accurate data on business size,” said Paul Denett, administrator of OMB’s Office of Federal Procurement Policy. “However, small businesses must be given fair opportunity to grow as they perform federal contracts. This rule is intended to strike the right balance between fostering growth and accurate data gathering.” The U.S. Chamber of Commerce endorsed the rule in a statement: “Accurate accounting of small-business contracts and a measure of how federal agencies meet their goals are two of our members’ biggest concerns.” The rule takes effect June 30, 2007, but it will apply retroactively to all contracts awarded before that date. SBA said the delay is needed because the Federal Procurement Data System-Next Generation must modify its database to track changes in size status. In the final rule, SBA backed away from its proposal to allow 10 days instead of the usual five for a losing bidder to file a size protest. Scorecard To Track Small Business Procurement SBA also announced creation of a Small Business Procurement Scorecard for 24 agencies. It is modeled after the President’s Management Agenda, which uses green, yellow and red lights to grade agency performance. But OFPP’s Denett said the Small Business Scorecard will not be included in the Management Agenda. SBA said the rankings will be published twice a year beginning in January, if fiscal 2006 data is available by then. The agency said it will increase the number of procurement center representatives, officials who promote small business set-asides. Currently just a few dozen of them exist to cover hundreds of contracting offices. Denett said only a small number of PCRs will be added because of SBA’s tight budget.