Washington D.C.— Today, the House Small Business Committee held a hearing examining Small Business Administration (SBA) size standards and their impact on small businesses. During the hearing, Ranking Member Nydia M. Velázquez (D-NY) highlighted the need for Congress to carefully evaluate and implement changes to size standards to avoid unintended consequences for small firms.
“This committee has regularly reviewed the size standards and tried to ensure that companies that want to grow can. We have at times provided additional runway to do it—to give small businesses additional time to build their capacity, portfolio, and workforce for long-term success,” said Ranking Member Velazquez. “Yet changes to small business size standards and policies can be a double-edged sword if not done correctly. We do not want to disincentivize or punish growth but must also carefully ensure we do not unintentionally harm the small businesses for whom growth is not the goal.”
There is no one-size-fits-all definition of a small business. SBA defines small by issuing size standards that are determined on an industry-by-industry basis. Each industry is assigned a six-digit North American Industry Classification System (NAICS) code. There are 1,037 industrial classifications and the SBA uses two main standards to determine “small” by NAICS code: employee or revenue-based standards. These standards determine eligibility for SBA programs, including loans and assistance, as well as federal contracting programs, opportunities, and authorities.
During the hearing small businesses testified on the range of challenges that size standards can pose for small firms, particularly for small contractors preparing to exceed the size standards and graduate into the “midtier” or “midsized” company market. Once a firm graduates out of the small business market and becomes midsized, it is no longer eligible for SBA assistance and programs, and as a result competes for contracts in free and open competition against companies of all sizes.
“Bigger small businesses that are about to graduate from the set-aside world need time to recruit talented employees, develop their intellectual property and build infrastructure to compete at the next level. Small businesses face enormous infrastructure hurdles especially if they grow very quickly or win larger federal contracts with big task orders,” said Erin Allen, President of Contemporaries, Inc. in Silver Spring, MD. “Some refer to this as the Powerball effect, leaving businesses scrambling to stay ahead of the demands of their growth and simultaneously trying to compete in the open market. A firm like mine simply can’t compete with the large federal contractors overnight.”
Witnesses also discussed past performance requirements, subcontracting processes, and bundling policies that would help improve the environment for small business government contractors.
