HispanicBusiness

Having been stung in the past by charges that big businesses were appearing as small ones in federal contracts, the U.S. Small Business Administration has instituted new rules requiring small business contractors to affirm that they are indeed small.

According to the SBA, cleaning its databases will eliminate large corporations from the roles of small businesses within a year.

"Flaws in the procurement process have allowed large companies to receive small-business awards and agencies to receive small-business credit for contracts performed by large businesses," the SBA's inspector general, Eric Thorson, testified before Congress last year. "We believe the problem to be widespread."

A report a year ago from the House Small Business Committee, headed by New York Rep. Nydia Velazquez, took the SBA to task on the issue. "The SBA's own Inspector General (IG) listed the fact that large businesses receiving small-business contracts is SBA's biggest management challenge; however, a recent report by the IG stated that only some progress had been made on implementing recommendations to address these issues. The reality is that billions of dollars are being awarded to large businesses through small-business contracts – and small firms are losing out on valuable opportunities."

The SBA first announced the reform initiative in November 2006, and the new rules took effect June 30. They require companies with federal contracts to recertify their size status as "small businesses." Recertification is necessary, the SBA said, because federal agencies have been able to count all contracts originally awarded to small businesses as small-business contracts for up to 20 years, even if those companies were later acquired by large corporations.

Now, any small business that merges or is acquired must immediately recertify. Companies that are no longer "small" won't lose their contracts, but the federal government can no longer count it as a "small" contract. This matters to them because federal agencies have a congressional mandate to ensure that 23 percent of their contracts go to small businesses.

Federal agencies will also immediately modify all existing contracts longer than five years to require small businesses to recertify their size status prior to an option being exercised. Contracts of fewer than five years will recertify when their first option is exercised, generally after the first year.

Because more than 5 million actions are recorded in the federal government's contracting database each year, as a practical measure contracting officers are being allowed to review short-term contracts as they are renewed annually.

"SBA is making tremendous progress improving federal contracting opportunities for small businesses," SBA head Steven Preston said.