By Tim Dougherty
The government's main initiative for disadvantaged businesses can help you enter the federal marketplace. But first you have to join.
The Small Business Administration's 8(a) Business Development Program helps small disadvantaged businesses compete for federal contracts. Last year some 6,000 businesses participated in the program, winning $5.9 billion in contracts. In 1997 the average value of such a contract was $228,576, according to the SBA.
Here's how the program works. Each year participating federal agencies establish a monetary goal for contracting with 8(a) companies. For instance, one agency might report that it intends to award up to $5 million worth of contracts to 8(a) firms. Which contracts are awarded toward that goal is determined on a case-by-case basis, though SBA guidelines stipulate that they be new as opposed to existing contracts.
Companies in the 8(a) program must market themselves aggressively to federal agencies. Once these companies win a contract, it is henceforth regarded as part of the 8(a) program, meaning that only 8(a) companies can compete for it. For example, should the 8(a) firm that initially won a contract become too large to continue in the program, another 8(a) company would be awarded that same contract.
Besides the 8(a) program, federal agencies designate a certain percentage of their annual contracts for exclusive bidding among small disadvantaged businesses. Companies in the 8(a) program enjoy an edge in this arena in that they've already been certified as small and disadvantaged and therefore cannot be accused of violating federal restrictions. Companies forced to resolve such charges typically take more time to fulfill contracts and are viewed less favorably as prospective suppliers.
To be eligible for the 8(a) program, firms must be small, unconditionally owned and controlled by one or more socially and economically disadvantaged individuals, and demonstrate potential for success. The SBA defines small businesses as being independently owned and operated but not dominant in their field. Depending on the industry, the size standard is based on the average number of employees for the preceding 12 months or on sales volume over a three-year period.
The standard for smallness varies greatly. For example, in the manufacturing sector, the maximum number of employees may range from 500 to 1,500, depending on the product. In the service sector, maximum annual receipts range from $2.5 million to $21.5 million, depending on the service. For a complete breakdown of size standards, visit the SBA's online guide at www.sba.gov/size.
To assess a company's "potential for success," the SBA looks at technical and managerial experience, operating history, financial resources, and professional certifications. Companies are required to have been operating at least two years as demonstrated by tax returns.
Social disadvantage is presumed on the basis of membership in a historically marginalized group, such as Hispanics. If required by the SBA, "an individual must demonstrate that he or she has held himself or herself out, and is currently identified by others, as a member of a designated group."
When evaluating the economic disadvantage of an individual, the SBA considers average two-year income, fair market value of all assets, access to credit and capital, and the financial condition of the applicant firm. Most importantly, the individual's net worth, excluding his or her equity in the firm and the equity in a primary residence, may not exceed $250,000. The SBA reports that in 1997, new 8(a) entrepreneurs had an average worth of $160,522.
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