Selecting the right NAICS code can make or break your next procurement.

Picking the proper NAICS code is often one of those tasks that we as contracting professionals do but we do it almost routinely. Many times, not too much thought is put into it and we rely on those codes we are familiar with, especially if we deal in a small range of products or services. For instance, those who work in a contracting office that supports environmental services, there are only a few NAICS codes that are strictly for environmental remediation and support services.

However, choosing the right NAICS code can make a big difference. Think of what you do with that code. You use it to conduct market research. The results of that market research are used to determine contract type, whether the requirement is for a commercial item or service, and even whether or not you can set aside the requirement for small business. That in turn affects the amount of competition for the award as well as whether an unrestricted solicitation is made.

The contractor has limited appeals for your selection. The Small Business Administration's Office of Hearings and Appeals is the appeal authority. A small business contractor might appeal for one of two reasons (see page two of this linked newsletter): to limit competition to just themselves (or a very few) by getting a more restrictive size standard, or to expand the size standard to allow access to that requirement. Of course, a large business would want a very restricted NAICS code that would have fewer than 2 potential offerors which would allow for an unrestricted requirement.

So, choose your NAICS code carefully.

House passes Small Business Fairness in Contracting Act

Sorry for the delay between posts at this important time for small business issues.

The reports are true, this bill (HR 1873) passed the House and heads for the Senate. An amendment that increased the percent of federal contracting dollars earmarked for small businesses from the current 23 percent to 30 percent was added to the final package sent forward.

The House Small Business Committee chair (Chairwoman Rep. Nydia Velazquez (D-N.Y.) believes that the government understated its compliance with this goal over the past few years.

There is little in this bill to help achieve a 30 percent higher goal.

Small Business Fairness in Contracting Act moves out of committee with changes

The House Oversight and Government Reform Committee passed a revised Small Business Fairness in Contracting Act (HR 1873) on May 1, 2007. This bill, originating in the House Small Business Committee, has the primary effect of limiting small business bundling and upping the small business participation goals. The bill as passed will up the small business goal from 23 to 28 percent, according the the GovExec article and waters down the original from virtually eliminating all bundling to those requirements that were originally satisfied by two or more small businesses.

For a discussion of the original bill, click here, here, and here. For the text of the original bill, click here. The amended bill is not yet available online and will be posted when it is available.

Will keep you up to date on the latest changes.

Proposed rule looks at small business and subcontractors

Here is a collection of articles that deal with a proposed FAR rule. As the introduction to the rule states,

Federal Funding Accountability and Transparency Act of 2006 (FFATA) (Pub. L. 109-282) requires the existence and operation of a searchable website that provides public access to information about Federal expenditures

This proposed rule puts into place the FAR requirements to make this happen. Among the issues this raises is the public access to subcontractor information that has not be available in the past. This information will eventually be captured and searchable at federalspending.gov.

A secondary issue is that small businesses, which have received a pass on a lot of accountability issues, will be faced with the government wanting- and getting- more details about how they do business.

Emily Murphy, the General Services Administration’s former chief acquisition officer, says that the government will have more information than ever on small businesses, so they need to better manage their government contracts.

Murphy said many small businesses have not mastered the intricacies of their contracts. For example, FAR small-business set-aside provisions limit how much of the contract’s subcontracting work can go to large businesses.

That means more work for them, reducing their ability to be fully functioning business partners.

[Note: Rep. Jim Moran says that about "ninety percent of the companies receiving small-business set-aside contracts will go out of business." Another encouraging word.]

Flunking Subcontracting Limitation is a proposal acceptability issue, not responsibility issue

The Governement Accountability Office sustained (Case B-298364.6; B-298364.7, TYBRIN Corporation, March 13, 2007) the protest of a total small business set aside contract where the apparent winner did not meet the limitations on subcontracting. The Air Force tried twice to get that contractor qualified (note: adding the work actually performed by the contractor with the work of small business subcontractors does not count), eventually getting an SBA Certificate of Competency.

The GAO's response to that was:

[the] Air Force’s determination that [the apparent winner's] proposal failed to comply with a material term of the solicitation (the subcontracting limitation) and, [thus] could not form the basis for award under the RFP, the agency should have found [their] proposal to be unacceptable, rather than finding [them] nonresponsible and forwarding the matter to the SBA for its consideration.

The SBA disagreed. It believes that whether or not a small business contractor will perform the contract is a responsibility issue. However, the GAO's "final" comment is:

the issue here does not concern whether a bidder or offeror can or will comply with the subcontracting limitation requirement during performance of the contract (where we recognize that the matter is one of responsibility) ...but
rather, whether the bidder or offeror has specifically taken exception to the subcontracting limitation requirement on the face of its bid or proposal.
Given that [this] circumstance involves the evaluation of a bid or proposal for compliance with a material term of the solicitation, the determination is one of responsiveness or acceptability, rather than responsibility.

It is simply a matter of the contractor meeting the requirements in the RFP.

Size standards, burdensome regulation top complaints to House panel

The House Small Business Committee, chaired by Rep. Nydia Velazquez (D-N.Y.) is looking into how to make the federal government more responsive to the needs of small businesses. I have already chronicled the complaints of those multi-million dollar companies complaining they cannot compete with "larger" companies, so want to continue to be "small" businesses.

While I am a big believer in eliminating regulations, especially "burdensome" ones, and I agree that taxation is a big problem to small businesses (as is the minimum wage issue, social security, unemployment taxes and others) I think that in many cases federal oversight of small businesses is heavy-handed and often hampers innovation and the flexibility that small businesses need.

Perhaps we need a "Mom and Pop Business Administration" to help those businesses that are truly small and deserving of assistance in getting government contracts.

Small business gets own team on FAR council

As reported on FCW.com, the FAR Council has added a sixth team for small business. The Administrator of the Office of Management and Budget, Paul Denett, issued a memo creating this new team to:

focus on small business issues and to coordinate with the Small Business Administration (SBA) on concurrent SBA and FAR rulemaking

With the new legislative agendas, this may be a preemptive strike to ensure small business issues are included in executive department decision-making. The House Small Business Committee Chairwoman Rep. Nydia Velazquez (D-N.Y.) is busy working on her favorite pet peeve- the Small Business Adminstration. I'll have to cover that separately.

Small business update

Check out the updated post on small business.

Small business that become "large" complain about no preferences

[Updated on Feb. 6, 2007- The SBA has decided to re-look the size standards for IT manufacturers. This should take care of the complainers for now. I don't know about you but a $23 million company is pretty big. If our store made that much money you would be reading about the health benefits of dark chocolate written by me from some resort somewhere.]

This article bemoans the reality that when small businesses grow too large, they lose their preferences and must compete against other large businesses. One company says,

If you have a company that has just won a new contract and its revenue is
over $23 million, then SBA believes that [the company] can compete on the
same level as multibillion international companies,” said Matt Hoffman, vice
president and corporate counsel for Maryland-based IT provider CNSI. “The
difference between $23 million and $5 billion is enormous.

Maybe I am getting cold and cruel in my old age, but small business preferences in government contracting should not replace the marketplace nor create an endless supply of business to companies. Instead, they should allow small businesses to get their feet under themselves and become competitive and dynamic organizations. Yes, they will face competition. That is life in business. Yes, they may have compete against really big companies. They will have to compete against small ones, too (who will have preferences in the government marketplace).

However, those companies that have a viable business concept- a real market-based reason for existence- will be helped by the small business program and be ready for success when they graduate. They will identify their particular niche in the marketplace and find ways to exploit it.

They may even wish to graduate faster because success is measured in how much business you do, not the number of government contracts you have.

That is what the role of the Small Business Administration and its programs should be.

"Gray pallor" to be cast over small businesses due to new certification rules...sure

The new SBA recertification rules (see my post from late last year) are creating a stir because they may make some small businesses less attractive to be purchased by large businesses. I can see where this might be a problem, especially for those folks who create a small company strictly to win a portfolio of lucrative contracts and then sell the whole thing to a large company and take the money and run.

Supporting that type of activity is really in the spirit of helping small businesses grow and expand the industrial base (isn't that the original goal of SBA preferences?)- NOT.

Small PC manufacturers exist- SBA says to use them

[Another of an occasion series of items resurrected from the past for your attention.]

Effective Nov. 28, 2006, PC's are required to be purchased from small businesses (and service disabled veteran-owned small businesses, or 8(a) BusinessDevelopment Program contractors). This is a change and according to the Federal Register notice, it is in response to receiving comments from small businesses that they have provided PC's to the government.

I guess that means keep your eyes peeled for small business vendors of PCs, especially at fiscal year-end. I haven't checked, but maybe they will be on an ITEC4 or GSA schedule somewhere.

Size does matter- Part II

As an addition to the earlier post regarding small business certification, here is a decision by the Court of Federal Claims where the Air Force required a new certification by the business when they were going to issue a task order to an IDIQ contract.

One of the contactors had been a small business when they won their part of the basic contract. However, now they are a large company. By asking for a certification of business size, the Air Force caused the company to be ineligible for award. The contractor didn't like that and took them to court- and lost.

This is a way to keep small business preferences from being misused. The SBA's rules (see earlier post) are a partial fix.

Contracting officers can ensure small businesses get their preferences by requiring certification each time. It takes little effort on the contractor's part to recertify and keeps the integrity of the preference program intact.

From before the blog: Size does matter

[Occasionally, I will resurrect something that I have found from the past and bring it to your attention.]

Cost for certifying as a small business as part of a GSA schedule proposal: $0
Cost for competitor to protest size certification: $.39
Cost for misrepresenting a large company as a small one: NOT Priceless- One million dollars!

Seriously, folks (I can't believe I said that)... There is a current controversy with large companies buying small companies and reaping small business contracting preferences. In fact, this fall, the Small Business Administration came up with new regulations to combat this issue.

Is that enough? Is that too much?

New small business recertification rules

The Small Business Administration announces new recertification rules. This helps to keep large businesses from buying up small businesses and taking advantage of preferences programs to get even more business. The html link is here. [For future reference, this was announced in the Federal Register, November 15, 2006 (Volume 71, Number 220) Page 66434-66444]