News Column

Disadvantaged Businesses Reap Rewards

Aug. 29, 2011

Rebecca Villaneda--Staff Writer

Recent changes to the Small Business Administration's 8(a) Business Development Program are aimed at reducing fraud, waste and abuse. They also are intended to ensure the right businesses compete for federal dollars. These changes, rolled out in March, are the first comprehensive overhaul of the 8(a) program in more than 10 years.

To be eligible for the program, a small business must prove itself socially and economically disadvantaged and be within the SBA's size standard as a small business. It also must be 51 percent owned by individual(s) classified as socially and economically disadvantaged, such as women and minorities.

Some regulations for demonstrating economic disadvantage have been tightened. Individual retirement accounts are now exempt when calculating an individual's net worth, and personal income can't exceed $250,000 for initial eligibility or $350,000 for continued eligibility. Also, total net assets must not exceed $4 million at the time of 8(a) application and not exceed $6 million for continued eligibility.

According to the most recent figures provided by the SBA, 1,967 Hispanic-owned companies participated in the 8(a) program in 2009. That's about 22 percent of the overall 8,827 firms that participated. In that same year, 8(a) businesses received $18.6 billion in federal contracts.

"The SBA 8(a) has made quite a few millionaires," said Patricia Barela Rivera, retired SBA district director for Colorado. "It works." She points out, however, that during her time with the SBA, not many would-be participants got through the cumbersome application process.

"It entailed a lot of hoops that people had to go through," Ms. Barela Rivera told HispanicBusiness magazine. Many companies, she said, sought experts to help with the applications—something small companies often cannot afford. There also was the misconception that once a company becomes 8(a) certified, federal contracts come easy. That notion persists, according to Darryl Hairston, the associate administrator for business development at the SBA.

"A lot of people think of this program as a contracting program, (and) it's not," said Mr. Hairston, who has been with the SBA for more than 30 years. "Access to federal contracts is just one of the business development tools that we use to develop a company. ... (If) they are not bankable we'll do what we can to try and make them bankable, but that doesn't mean that we're always going to be successful."

Between 750 and 1,000 businesses apply for 8(a) status every year. Most are denied, according to Mr. Hairston.

Major Changes
The SBA now is authorized to "early graduate" firms that outgrow the size standard for their North America Industry Classification Standard (NAICS) code, which defines the industry in which services are performed.

One company that may graduate early is P3S Corp., a San Antonio firm that provides information technology, financial and health-care management services to the federal government.

The company, owned by Mary Ellen Londrie, was certified as an 8(a) business in February 2006. It also is No. 4 on the 2011 HispanicBusiness Fastest-Growing 100.

The company grew its revenues from $875,000 in 2006 to $25 million in 2010, a 2,757.1 percent increase.

Ms. Londrie agrees that applying for 8(a) status can be overwhelming, but said that free resources are available, including the Procurement Technical Assistance Center and Minority Business Development Center.

"The key to a successful application is to answer all questions completely and provide very detailed, meticulous backup," she said. If an application is denied, a company must wait a full year before re-applying.

The 8(a) program changes have not affected P3S Corp., but the program helped the company thrive in a "limited-but-still-competitive environment" and provides "face time" with government procurement officials, she said.

Joint Venture Changes
In March there were 482 8(a) mentor-protégé agreements, according to the United States Government Accountability Office. Mentor-protégé programs seek to help small businesses compete for high-value federal contracts.

Under the new rules, the protégé now must perform at least 40 percent of the work. It cannot subcontract with a non-8(a) joint venture partner, and must own at least 50 percent of the venture. Also, each firm must explain how work requirements were met.
SBA rules now allow mentors to have up to three protégés at one time, while protégés can have a second mentor in an unrelated NAICS code. Mentors that don't provide proper assistance can experience consequences, ranging from stop-work orders to debarment.

SBA 8(a) participants in joint ventures are limited to three contracts during a two-year period, and cannot subcontract work to a non-8(a) joint venture partner.

The mentor-protégé program allowed Andale Construction Inc. (ACI), which joined the 8(a) program in 2009, to enter a joint venture with Sundt, a construction company founded in 1890.

Luis De La Cruz, president and CEO of ACI, based in Arizona, said the relationship with Sundt will help ACI sustain its viability in the construction market. ACI is the managing partner, holding 51 percent of the joint venture. Mr. De La Cruz said the venture allows him to compete in a market he might not otherwise have a chance in and bring jobs to local communities.

"The theory behind the program when it was legislated was to close the gap between disadvantaged individuals and nondisadvantaged individuals," Mr. Hairston said. The 8(a) program helps "to level the playing field."

"How many small businesses can declare nearly $80 million in federal procurement while being in business for a period of four and a half years?" Mr. De La Cruz said. "I would think not many."

Source: (c) 2011. All rights reserved.

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