Photo By: Ellicia
The U.S. Small Business Administration is proposing major changes to how the federal government defines a “small business.” If approved, the changes could have a significant impact on government contractors, particularly companies that have grown beyond today’s small-business limits.
Under the proposal, the SBA would increase the size limits for businesses in hundreds of industries. More than 114,000 additional companies could qualify as small businesses. In some industries, the changes would be substantial.
For example, the revenue limit for information technology companies could increase from $34 million to $531 million. Management consulting firms could see their limit rise from $24.5 million to $295 million, while engineering companies could go from $25.5 million to $252 million.
The SBA says the current system is outdated and does not reflect the size of today’s industries. The proposed changes are intended to give growing companies more time to compete for federal contracts and remain eligible for programs designed to support small businesses.
For many mid-sized government contractors, that could be good news.
Companies can quickly lose access to small-business contracts once they exceed the current size limit. This can create a difficult situation for businesses that have grown beyond the small-business category but are still much smaller than the largest federal contractors.
Raising the limits could give these companies more opportunities to compete for government work. A company that has grown to $50 million in annual revenue, for example, could remain eligible for certain small-business contracts instead of being pushed immediately into competition with much larger companies.
The proposal could also open the door to additional government programs, including certain contracting programs and SBA-backed financing.
But there is another side to the proposal.
If companies with hundreds of millions of dollars in revenue are allowed to qualify as small businesses, much smaller companies could find themselves competing against businesses with significantly more employees, resources and federal contracting experience.
A $5 million company, for example, could potentially compete for the same small-business contract as a company generating hundreds of millions of dollars in annual revenue.
Joanne M. Frederick, CEO of GMS, says that could make it harder for new companies to break into federal contracting.
“Raising the size standards could make it substantially harder for new and genuinely small businesses to compete. A company cannot build federal past performance without winning federal work, but it increasingly cannot win federal work without already having past performance. Set-asides help break that cycle by giving small businesses a realistic path to their first prime contracts.”
Past performance is especially important for companies trying to win their first federal contracts. Set-aside contracts can give smaller businesses a chance to gain that experience. But if larger companies become eligible for the same opportunities, emerging contractors could face stronger competition.
The changes could also affect mentor-protégé programs and other partnerships between government contractors. Companies that are currently considered too large to participate in some small-business programs could become eligible under the new standards.
Another concern is contract bundling. When government agencies combine several requirements into one large contract, smaller companies can have difficulty competing. If larger companies are allowed to qualify as small businesses, critics worry that agencies could have less incentive to divide large contracts into smaller opportunities.
Supporters of the proposal argue that the current system can hold growing companies back. The SBA says the changes would simplify the system by reducing nearly 1,000 existing size standards to 338 and would better account for the size and growth of individual industries.
The proposal is not yet final, and contractors and industry groups still have an opportunity to provide feedback.
The debate ultimately comes down to a simple question: How small should a “small business” be?
Higher limits could give growing companies more time to build their businesses and compete in the federal market. But they could also put smaller and newer contractors in competition with much larger companies for the same opportunities.
For government contractors, the answer could have a major impact on who gets to compete and who gets left behind.
About GMS
GMS solves complex challenges by innovating and executing solutions—driving lasting impact across healthcare, government, and complex markets.
Joanne Frederick is the founder of Government Market Strategies (GMS), a leading force in government healthcare consulting. Her expertise lies in strategic innovation, organizational design, and seamless deployment. She founded GMS to be a platform for designing forward-thinking strategies, building resilient organizations, and delivering results where others see only complexity.
Government Market Strategies, Inc. (GMS) is a woman-owned small business that combines operational excellence, financial acumen, and strategic vision to create impactful solutions for our clients. They are a group of highly experienced professionals who provide a wide range of support services focusing on the Government Contracting Industry. Co-founded by three proven government contracting executives, GMS delivers holistic services designed to ensure your success.
With deep roots in federal healthcare programs, particularly the TRICARE program, the GMS team possesses over three decades of experience supporting the Military Health System and TRICARE beneficiaries. They’ve been integral to nearly every major TRICARE procurement since the CHAMPUS Reform Initiative in 1992, allowing them to provide unmatched insight and expertise in healthcare delivery. GMS brings deep industry experience to every engagement with a team that has developed comprehensive strategies and implemented successful solutions for complex situations.
