In an attempt to bring order to federal small-business contracting and ensure that a fair portion of prime and subcontracts are directed to small businesses, the U.S. Small Business Administration has proposed new recertification regulations that will take effect on June 30.
The new rules reflect the changing times. In the past decade, the structure of government contracts has evolved from standard deals of one year (with four one-year options) to five or 10 years (with additional five- or 10-year options). They also fill a few loopholes in long-term contracting — particularly addressing concerns that small-business dollars were being spent on businesses that have long outgrown their size designation through a merger or an acquisition.
More importantly, the new rules are designed to ensure that contracts designated for small businesses actually go to them. However, what is noteworthy is the fact that these regulations provide contracting officers the discretion to request that a small business should recertify for a particular task order — a process that is not mandatory. And once a contracting company outgrows its small business status, the purchasing agency can exercise discretion in determining whether or not to continue the contract.
What is clear and reasonable under the new rule’s coverage of routine recertification is that small businesses could retain, for the duration of the contract, their status at the time the contract was awarded. However, it must also be stressed that government contracting officers have the right to request recertification at any time.
Some view the rules as designed primarily for contracting agencies for accounting purposes. Other critics find these onerous and a potential hindrance to growth — to the point of having punitive effects on high-performing small businesses.
While this policy is generally intended to protect small businesses, it could put companies that have outgrown their size designation — but not yet considered large by any standard — in a limbo, where they neither have the benefits and protection of a small business nor the power to compete against the big players in the marketplace. Still, far from protecting small businesses, the new regulations could make them appear as “devalued” and less attractive for a potential merger or acquisition.
It also becomes cumbersome on government procurement officers as these new rules would force them to “recompete” contracts. As a result, they would need to find other small businesses to replace those that have been harmed.
What happens then to small businesses that are on the brink of exceeding their size standard? Should they consider a merger or acquisition in order to survive? This option becomes part of the daunting reality — arguably revealing that the new policy may not be in the overall best interest of small firms with growth ambitions.
Ultimately, however, the question is whether the new rules are there to help small businesses become more competitive in the marketplace, or to make it more convenient for agencies. While this new policy change is well-intended, time will tell if this has unintended effects on the small businesses it was designed to help.