This is the continuation of a series of articles that address specific issues faced by Minority and Women Owned Enterprises (M/WBE) with a primary niche of federal contracting. James T. George, CEO & Founder, Management Support Technology, Inc (MSTI) provides a quest commentary.
WITH CONGRESSIONAL HELP, FEDERAL SECTOR SMALL BUSINESSES CAN HAVE A BIGGER IMPACT ON THE ECONOMIC RECOVERY
By James T. George
The life cycle of a small business that serves the government sector is defined by the North American Industrial Code System (NAICS). This system mandates that a business is no longer small when its revenue (or employees for some NAICS) reaches the maximum for its industry. For the information technology industry, where many small businesses provide services, the 3-year average maximum is $25 million. A business that exceeds this maximum is considered large and must compete with large businesses in the unrestricted category. This is not only unfair to small businesses but is also detrimental to economic growth. With congressional action, however, this situation can be corrected.
Many consider small business growth the life blood of the economy. If a company does well, it may outgrow its small business size standards within 10-20 years and be forced to compete in the unrestricted category, be acquired, or restrict sales to remain a small business.
Often the decision is to sell rather than fight a losing battle. While this may be the best solution for the owner, the economy loses a mature and proven small business that usually offers more innovation and better value than many large businesses do. When this scenario is multiplied, this loss of mature small businesses (with their flexibility, quality, responsiveness, and good value) has a dampening effect on economic growth.
Congress could solve this problem by creating a 2nd tier category of small business for companies that exceed the size standard This could be done by raising the NAICS size standards for 2nd tier from the current revenue maximum to a realistic level such as $500 million. Alternatively, manage 2nd tier business by the number of employees only, such as 2000 employees. Small business contracts could be reserved for 1st tier and 2nd tier businesses. The NAICS system would continue to control 1st tier businesses, but contracts valued above the NAICS would, up to their limit, be targeted for 2nd tier businesses. First tier would be eligible to compete for 2nd tier contracts, but 2nd tier businesses would not be eligible for 1st tier awards. The program would require 2nd tier businesses to mentor 1st tier businesses.
These actions would increase the number of mature small businesses that create jobs and bring good value to government. It would also give 1st tier small businesses a path to maturity without being forced to sell. The mentoring of 1st tier businesses would help them grow and contribute more significantly to the economy.
On December 1, 2010, these ideas were presented at a Capitol Hill Small Business Sustainability Luncheon which was sponsored by the Midtier Advocacy (MTA), a coalition of small businesses and the Retired Military Officers Association (RMOA). Congressional staffers, government small business officials and members of the small business community attended