SBA "Set-Aside Policy" Proposal Could Change Which VARs Are Eligible

By Christine Kern, contributing writer

A new revenue ceiling proposed by the Small Business Association (SBA) could significantly alter the landscape for IT resellers by excluding a large number of small businesses from the federal IT reseller market, according to the E-Commerce Times. The SBA is proposing revisions to the size standards affecting VARs and other IT solutions providers who provide hardware, software, or both as part of projects that also involve installation, systems integration, or other IT-related services for federal agencies. The change means that companies with more than $27.5 million in annual revenue no longer qualify for small business preferences.

“This proposed change is a terrible mistake that would have extreme adverse consequences for many small businesses,” The E-Commerce Times quoted Lars Anderson, an attorney with Venable, in comments to the SBA on behalf of Wildflower International, a small woman-owned IT reseller.

“We are looking here at some highly professional, qualified firms that provide efficient IT support to the government with proven track records in terms of federal contract performance — but they just operate with well under 150 employees, unlike the really big players,” Anderson told the E-Commerce Times.

Meanwhile, the SBA is defending the proposal, stating that the changes are necessary since the existing size standards that involve references to both revenue and employees have created inconsistencies, confusion, and misuse. Further, the SBA explained, contracting officers are not able to identify size elements in a government data base, which leads to misunderstandings about set-aside goals. Therefore, the use of employee counts instead of revenues may have negatively affected some small businesses, according to the administration.

Since SBA issued the proposed rule in September, more than 200 people have responded, mostly in opposition to anticipated change. One leading expert on federal contracting law, Professor Charles Tiefer, has joined with the American Small Business League (ASBL) President Lloyd Chapman in opposing the new policies, stating that they will be “devastating to thousands of small businesses,” according to a press release.

The release explains that the policy was derived from Congress’s intent in the Small Business Jobs Act of 2010, which was “to allow small businesses to compete in the current federal marketplace.” However, Tiefer contends, the proposed rule accomplishes exactly the opposite by “eliminating” the higher size standard of 150-employees and using the lower size standard of $27.5 million in receipts.

“If the SBA actually adopts a final rule eliminating IT-VAR, this will have precisely the effect Congress did not want. The final rule will decrease small business size standards in the ‘solutions’ sub-industry. Businesses that qualified, below the 150 employee standard, no longer will,” Tiefer argues in the release.

According to Tiefer, if the SBA adopts the final rule, “small businesses will be squeezed out of the federal marketplace.”

“Eliminating the 150 employee ceiling puts the ‘high-employee-level’ type of contractor out of business, because it cannot get down under $27.5 million without a kind of radical chopping it cannot handle — i.e., switching to a business model of fewer employees, and, laying off a third (50) or more employees,” states Tiefer.

“Only IT-VAR is being eliminated. This unfairly and inconsistently punishes the ‘IT Solutions’ industry,” Tiefer states.