Everything old is new again between FASA and small businesses

I was right. The Federal Acquisition Streamlining Act and small business don't mix.

As I noted in this column when the law first raised its head, there are problems
applying FASA to buys involving small businesses, especially in the area of the simplified
acquisition procedures [GCN, Aug. 7, 1995, Page 75].

Initially, the Small Business Administration had decided to throw out 15 years of
practice and require small business nonmanufacturers to supply the product of a small
business for all agency purchases in excess of $2,500. This had the practical effect of
trashing the way the vast majority of procurement actions for supplies had been done and
put small business nonmanufacturers head-to-head with large businesses.

Had the SBA gone the other way and redefined the area between $25,000 and $100,000 as
permitting nonmanufacturers to supply any domestically manufactured product, then those
small businesses that had enjoyed set-asides for purchases in that range would have been
harmed. Why? Because potentially they too would have to compete with large businesses.

When the first version of the new rule was promulgated, many agencies, fearing an
assault on their small business statistics, took the rather bizarre approach of declaring
all simplified acquisitions of less than $25,000 to be unrestricted--that is, not
set-aside for small business. And, amazingly, the small business specialists and SBA's own
procurement center representative agreed.

They went along with these rules because most acquisitions worth less than $25,000 were
expected to be automated and, therefore, paper solicitations already were being sent only
to small businesses. By unrestricting the acquisition and sending solicitations only to
the firms that would otherwise have been small businesses, the agencies would get credit
for small business awards without having to call the acquisition a set-aside.

The only way this ruse might have failed is if the government's electronic commerce
program, the Federal Acquisition Network, had worked and agencies really began
broadcasting the bulk of their solicitations electronically. But FACNET traffic remained
minimal so the agency-rigged system worked until the rules were changed again in March.

The March changes have not been promulgated in the Federal Acquisition Regulation, so
most contracting officers don't have a clue yet about these new rules. What the changes
do, as Lil' Abner would say, is "put 'em back the way they wuz." Well, sort of.

The interesting wrinkle is that SBA took a stab at creating an anti-brokering rule. As
a general proposition, all simplified purchases of supplies also will be purchases of
commercial items.

Under FASA, brokers can compete out of the trunks of their cars or over the Internet
along with everyone else, because the Walsh-Healey Act does not apply to commercial
purchases or any purchases worth less than $10,000. Thus, one need not be a regular
dealer, defined by the law as a company that maintains and sells a product that it
normally has in stock, to qualify as a nonmanufacturer of a commercial item.

So lumping the commercial purchase rules and the simplified acquisition purchase rules
together, one could be a mere broker of a commercial item as long as the acquisition in
question is less than $100,000.

But not so fast broker-breath. The SBA has thrown a bit of a curve ball into the March
rules. The new 13 CFR 121.406(b)(1)(ii) says a small business is one that "is
primarily engaged in the wholesale or retail trade and normally sells the items being
supplied to the general public."

If that looks like a knock-off of the Walsh-Healey anti-brokering language that would
otherwise be inapplicable to a commercial purchase, go to the head of the class. In all
likelihood, this language was adopted to protect existing small nonmanufacturers that had
complied dutifully with Walsh-Healey prior to FASA and would be impacted adversely if
Walsh-Healey's anti-brokering provisions were repealed. So SBA put'em back in, but only
for acquisitions worth more than $25,000.

Prior to FASA, no one really cared about brokers for contracts less than $10,000
anyhow. As a practical matter, brokering of supplies is now OK between $10,000 and

A number of years ago--yes, years--this column likened procurement reform to the
activities of two kinds of people, the shapers--whose job it is to change things, and the
smoothers--whose job it is to erase the efforts of the shapers. Now, we have a clear
example of how this principle works.

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