New Rule Requires Small-Business Recertification

The Small Business Administration has announced a new rule that addresses the issue of companies growing out of their small-business status during the duration of a government contract.

According to a rule listed today on the Federal Register -- the official daily publication for rules, proposed rules and notices of federal agencies and organizations -- small businesses will be required to recertify their size status on long-term contracts when they are purchased by or merged with another business, at the end of the first five years of a contract or when a contract option is exercised.

The SBA's regulations currently allow a company to certify itself as small when awarded a contract and maintain that certification for the life of the contract -- even if it grows out of the size standard during the duration. That regulation, however, has become quite controversial with the growing popularity of long-term federal contracts, including Government-Wide Acquisition Contracts (GWACs), the General Services Administration (GSA) Multiple Award Schedule (MAS) contracts and multiagency contracts (MACs), all of which can easily extend to one or two decades. The new rule applies to such contracts, requiring small businesses to recertify their size status "prior to the sixth year of performance, and every time an option is exercised thereafter."

The SBA received more than 600 comments both supporting and criticizing proposals to require recertification on long-term contracts on an annual basis, on an order-by-order basis or at least once every five years. According to the rule summary in the Federal Register, SBA considered the comments and consulted with federal agencies that would be affected by the annual recertification requirement. In deciding recertification would be required prior to the beginning of the sixth contract, the SBA said agencies do not have the resources to request, receive and process the expected influx of size certifications annually, and small businesses require more than a year to "recoup proposal costs or to conduct long-range strategic planning."

Not everyone agrees with that rationale.

"[This] will allow the government to report contracts [held by large businesses] as small-business awards for five more years," says Lloyd Chapman, president of the American Small Business League. "A lot of people thought [SBA was] going to come out with something to redirect those big IT contracts back to legitimate small businesses, but this is going to do just the opposite."

If a small business's size status does change with recertification, agencies will not be able to attribute dollars toward their small-business goals; however, the contract won't be terminated, nor will the terms and conditions change, according to the SBA.

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