OFPP makes sure 'small' means small

Neither Energy nor RSIS did anything wrong in the contracting process, but the result was troubling.

'OFPP's Angela Styles

Henrik G. DeGyor

Directive tells GWAC agencies to require annual recertification of small businesses

The White House has proposed a far-reaching contracting change that procurement officials hope will give agencies a clear understanding of the size and type of companies with whom they do business.

The change will require small businesses holding governmentwide acquisition contracts to recertify their size and ownership status annually.

The Office of Federal Procurement Policy this month sent letters to the Commerce Department, General Services Administration, National Institutes of Health and NASA requiring them to add a recertification clause to their GWACs by April 1. If the provision is not added, OFPP will not renew their executive GWAC designation, which lets other agencies use the vehicles, OFPP administrator Angela Styles said.

The action is one of several efforts in recent months to close a contracting loophole that lets companies win small-business set-aside task orders for years after they have exceeded the applicable small-business standard. This standard, defined by the Small Business Administration, varies with a company's revenue, its number of employees and the type of work performed.

Annual check-ins

The Energy Department's recent award of a five-year, $409 million task order to RS Information Systems Inc. of McLean, Va., in part prompted the OFFP decision to require the annual recertification. Energy made the order through the Commerce Information Technology Solutions GWAC, a vehicle originally established in 1999 by the Commerce Department explicitly for small businesses.

To qualify for COMMITS contracts, bidders could not exceed $18 million in average annual receipts for the three preceding years. By 2003, some of the companies had grown substantially. RSIS, for example, reported $195 million in revenue in 2002 and had 1,350 employees.

Neither Energy nor RSIS did anything wrong in the contracting process, but the result was troubling, Styles said.

OFPP officials decided to take action six or eight weeks ago, after hearing about similar occurrences in other long-term contracts, she said.

Meanwhile, OFPP also is pursuing a change to SBA rules and the Federal Acquisition Regulation to require annual recertification for all multiple-award contracts, including GSA Federal Supply Service schedule contracts.

If after recertification a vendor no longer meets the small-business standard, it will not be able to compete for new set-aside orders but will be able to continue work on jobs already awarded.

'Accuracy requires us to look at this annually,' Styles said. 'This may take more work, but you can't have a system that people believe in or hold accountable unless someone that is designated a small business is a small business.'

Presently, 23 percent of federal prime contracts are supposed to go to small businesses each year. But because of the loophole, agencies are counting contracts toward their small-business goal when the winning vendors are no longer small, Styles said.

Numbers to count on

'I think this change will help agencies and small businesses,' she said. 'We need to have a system and numbers that we can rely on. If we say we are awarding 23 percent to small business but we are not, we need to know that. We need to make changes to the system so we have reliable numbers and meet our goals. A lot of agencies want to award to small businesses and go to a vehicle like COMMITS for that reason.'

Gary Jackson, SBA's assistant administrator for size standards, said agency officials 'are supportive of any effort to maintain integrity of small-business programs and small-business certification.'

SBA officials also have crafted a proposed rule that would clarify when small businesses must recertify their status. The rule is in final review, and it could be sent to OFPP next month, Jackson said.

GSA was the first to take action on this issue. In October, it began requiring recertification every five years on its multiple-award contracts. OFPP's FAR change would supersede GSA's change, Styles said.

Recertification had not previously been required, meaning that a business could be considered small for up to 20 years in the case of a GSA schedule contract with a five-year base and three five-year options.

The OFPP letter and the rule change could help many small businesses, said Valerie Perlowitz, president and chief executive officer of Reliable Integration Services Inc., a woman-owned small business in Vienna, Va.

'This is a step in the right direction,' Perlowitz said. 'COMMITS was the first small-business-only vehicle, and they helped a lot of companies be successful. But once they have achieved success, [companies] should not be eligible for new contract awards.'

One agency small-business director disagreed.

'Program managers and contracting officers may be reluctant to set aside acquisitions for fear that the small firm may become large within two or three years, which means they will have to go through the process of awarding another contract before the normal five-year cycle. Given the limited resources, federal officials may prefer full-and-open competition instead of set-asides,' he said.

Recertification every five years would be sufficient; otherwise companies will be penalized too soon after becoming successful, the small-business director said.

Rodney Hunt, president and CEO of RSIS, winner of the Energy task order, also said giving companies five to 10 years to recertify would be appropriate.

'That is a good amount of time to allow growth and establish an infrastructure and base to continue on,' Hunt said.

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