New Standard for Small Business Enables More Firms to Compete in Federal Market

 

April 2012

NSPE TODAY: POLICY PERSPECTIVES
New Standard for Small Business Enables More Firms to Compete in Federal Market

BY SARAH OGDEN

In February, the Small Business Administration published a final rule updating small business size regulations for architectural and engineering services (13 CFR §121.201). These size regulations determine which private-sector businesses are eligible to participate in federal programs for small businesses, including contracting set-asides. SBA's new size standard for engineering services allows firms with up to $14 million in average annual receipts over three years to qualify as small businesses. The updated standard became effective on March 12, replacing the $4.5 million standard set in 2005.
 
For many, the engineering size standard increase was long overdue. Critics have disparaged the $4.5 million standard as being years out of step with economic and industry realities. The engineering community demonstrated strong support for a size standard increase: More than 75% of the comments SBA received supported increasing the standard by some amount, while only 12% of the comments opposed any increase at all. NSPE supported increasing the engineering size standard because it would enable more qualified firms to compete in the federal marketplace. Despite the fact that most engineering firms are small businesses, the federal contracting market strongly favors large engineering firms. Encouraging competition in the federal marketplace benefits the public health and safety by ensuring that the most qualified firms perform services.
 
Opponents of the size standard increase, however, worry that the influx of newly qualified larger firms will flood the small business market and create unfair competition for "truly small" firms. But while more than 90% of engineering firms are eligible for small business perks under the new standard, their collective market share remains small, accounting for less than 30% of engineering revenues. Moreover, while a $14 million engineering firm is triple the size of a "truly small" $4.5 million firm, both are eclipsed by the average Engineering News-Record Top 100 firm, which pulls in around $650 million—demonstrating that "small" is definitely relative.
 
The House Small Business Committee has also been working on small business contracting issues in a rare bipartisan effort. The Small Business Protection Act of 2012 (H.R. 3987) offers a direct challenge to SBA's attempts to apply uniform size standards to groups of similar industries by requiring that size standards be determined by individual industry classification. SBA has proposed common size standards for groups of similar industries in an attempt to simplify small business size regulations—sometimes, perhaps, at the cost of good sense. The proposal of a $19 million common size standard for the architectural, engineering, and related services sector provoked the ire of the architectural community, in part because SBA had no industry data to support such a large standard for architectural services. SBA ultimately separated the size standards for architecture and engineering, increasing the standard for architectural services to just $7 million rather than imposing the $14 million engineering standard.
 
Two other pieces of legislation would focus on the government's obligation to meet its small business contracting goals. The Government Efficiency Through Small Business Contracting Act (H.R. 3850) would increase federal agencies' small business contracting goals to 25% from 23% for primary contracts and to 40% from 35.9% for subcontracts. The bill would also revoke bonuses from senior executives whose agencies failed to meet their goals. The Small Business Growth and Federal Accountability Act (H.R. 3779) would brandish a similar stick by imposing a 10% budget cut on agencies that failed to meet their goals. In FY10, the federal government fell just short of meeting its goals, awarding 22.7% of its primary contracts and 35.4% of its subcontracts to small businesses.
 
SBA's new size standards could encourage agencies to meet their small business contracting goals because the standards enable a larger pool of qualified firms to compete. The more fully small firms can meet agencies' needs, the more likely agencies are to pursue their small business contracting goals, expanding opportunities for all small businesses that contract with the federal government.
 
To read the final SBA rule, visit
http://1.usa.gov/xusnIa.

 

In Brief

  • Small Business Administration increases size standard for firms that provide engineering services.
  • Firms with up to $14 million in average annual receipts over three years now qualify as small businesses.
  • The previous level was $4.5 million.
  • NSPE supported the size increase.
  • Opponents say the increase will flood the small business market and create unfair competition for "truly small" firms.