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Snippets of the topic are everywhere--from the "CBS Evening News" to The New York Times. One would think it's a tired story. But, alas, the small-business procurement debacle marches on as money earmarked for small integrators is getting misplaced along the way. The issues can be explained away at best by flawed procedures and human error, at worst by mismanagement and all-out fraud--depending on whom you ask.
"Everywhere you look in federal small-business contracting, you find fraud, you find abuses, you find loopholes," says Lloyd Chapman, president of the American Small Business League (ASBL). "What you don't find is anyone doing anything about it."
Part of what makes the topic such a lightning rod for debate are the many sides to the procurement story. There's the mom-and- pop integrator that regards "small-business procurement" as something of a misnomer. There's the top-tier integrators that qualify as small by law but endure finger-pointing just the same. Then there's the government agencies that are pressured to allocate dollars to small businesses, but obligated to use contract vehicles that eliminate many from the running. And there's the federal regulatory offices that are charged with overseeing the program, but have little authority to enforce procurement goals. When all of these varying perspectives are considered, what's left is a big mess and, oftentimes, misspent tech dollars.
"We need to exert more effort toward being small-business-friendly," says Roscoe Bartlett, congressman for Maryland's Sixth District and former small-business owner. "It's a formidable array of regulations that is just bewildering. There needs to be someone there to hold their hands and reward our government buyers that actually make an effort to reach out--since many are just not doing it."
What Has To Be Done?
While the standards (see "The Law In a Nutshell") seem pretty straightforward, implementation of the program has proved anything but easy. First off, what constitutes "small" is up for debate by many--and under scrutiny right now. The window of time available for lending comment to the Small Business Administration (SBA) was extended from February to April.
"Generally speaking, two things have to happen," says Rich Carter, spokesman for the House of Representatives Small Business Committee. "First, the size standard has to change to a point where small business actually means small business. That means getting rid of the loopholes that allow large businesses to win small-business contracts. And second, there needs to be more frequent size certifications."
Much has been made about companies growing out of their small-business statuses during the duration of the contract--they're certified as small businesses at the start, grow to large during, but maintain the small-business status throughout. The General Services Administration (GSA) dealt with that issue somewhat by requiring small businesses to recertify their size at the option period on multiple award contracts. But a few issues remain: First, option periods often last for years; second, the requirement doesn't apply to all small-business contracts; and third, many companies manage to maintain small-business status despite significant growth.
"Too often, we go for a small-business set-aside, only to see our much larger competitors in manufacturing bid and get it," says Bobby Rose, president of Bar Code Equipment Service, a Service Disabled Veteran Owned Business (SDVOB) government VAR based in Jacksonville Beach, Fla.
Generally speaking, the definition of small according to the program's guidelines depends on the industry category that a company falls under, defined by the North American Industry Classification System (NAICS).
For example, the maximum number of employees a VAR can have to be considered small is 150. Most manufacturing industries can have 500, though in some cases, that number can be as high as 1,500. Still, other industry categories determine size by revenue rather than employee numbers.
"It can be a little bit deceiving when a $23 million company is listed as small," says Megan Gamse, senior analyst at Input, a Chantilly, Va.-based research firm. "But important to keep in mind is that a $23 million systems integrator is actually a pretty small company."
According to the U.S. Census Bureau, which helped develop the NAICS, classification codes are usually derived from information that the businesses provide on administrative, survey or census reports.
"Nothing frustrates me more as a large business than to see an opportunity become a set-aside and get awarded to what I call an ersatz small business," says Kevin Adams, vice president of program management for Vernon Hills, Ill.-based CDW Government. The company's Small Business Partner Consortium was established in 2003 to help small businesses win IT contracts with government agencies. "These are the companies that because of loopholes can masquerade as a small business and get awards."
Many point to Chantilly, Va.-based GTSI, which had 850 employees by the end of 2004--too large to be considered a small-business VAR. But NAICS codes cited in GTSI's January 2005 Central Contractor Administration (CCR) listing identify the company as a manufacturer and a wired communications carrier--the former of which, as stated, carries a small-business standard of 500 employees or more, the latter up to 1,500. Similarly, Software House International (SHI), which lists more than 700 employees, claims to be a top reseller for Adobe, Citrix, Corel, Crystal Decisions, Macromedia, Microsoft, Network Associates/McAfee, Novell and Symantec. Yet, the company lists NAICS codes of manufacturing.
But, in fairness, it's the agencies that determine who can bid on a given small-business opportunity by specifying a particular NAICS code.
"A NAICS code is assigned to the contract by the contracting officer," says Gary Jackson, assistant administrator for size standards at the SBA. "The size standard that the SBA established for that code then applies to that contract. What NAICS code the contractor operates under is an irrelevant point."
NAICS codes simply allow companies to qualify and capture various categories, says Paul Liberty, area vice president for corporate affairs and investor relations at GTSI. "When government is looking to do business with satellite communications, for example, they're going to look to companies in the telecommunications industry. [GTSI] does a lot of satellite communications in Iraq, in Afghanistan, and in this country with first-responders," Liberty says, and, therefore, is coded accordingly.
CDW's Adams, too, concedes that nothing illegal is going on. GTSI, for one, was awarded a contract as a small business in 1996. The company recertified twice since then, extending the small-business contract until 2007. "The way the rules are written enable that to happen," Adams says. "Such companies are not doing anything [unlawful], but every time they win a small business set-aside, a legitimate company struggling out there doesn't have the opportunity."
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