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SDBs allowed to self-certify status

New rule ends decade old process of SBA approval

Federal News Network Staff

October 7, 2008 6:55 am

3 min read

By Jason Miller
Executive Editor
FederalNewsRadio

The Small Business Administration issued new rules for the small disadvantaged business program that changes a nearly decade old process.

In an interim rule published in the Federal Register Oct. 4, SBA now lets companies self-certify their socio-economic status as a SDB for subcontracts. And for prime contracts, each agency will determine if the SDB meets the government’s criteria.

Since 1999, SBA required companies to apply to be certified as a SDB. But the new rules come after SBA announced in September that it no longer would accept new SDB applications.

Calvin Jenkins, SBA’s deputy associate administrator for the Office Government Contracts and Business Development, says the decision to change the rules were for two main reasons. The first is because Congress let the authorization for all but three agencies expire. Only the Coast Guard, the Defense Department and NASA can use the 10 percent price evaluation adjustment clause.

The clause lets SDB firms’ bids to be 10 percent higher than non-SDB firms and not get penalized. The goal is to give incentives for agencies to award contracts to these firms.

The second is because without the price evaluation adjustment, Jenkins says SBA did not need to certify SDBs anymore.

“SBA received concerns that having small businesses go through process was an unnecessary burden in terms of time and costs,” Jenkins says. “Small businesses must understand that we are not pulling away from our commitment to SDBs. This is just one particular tool and in order to use tool, companies had to be certified.”

By suspending the program, SBA also will stop charging agencies on average $1 million a year to certify and maintain the database.

Jenkins says the government as whole has done a good job in meeting the governmentwide 5 percent of awarding all contracts to SDBs. In 2007, he says SDBs won 6.6 percent of all contracts, up from 3.3 percent in 2001.

Despite this progress, some experts believe the suspension of the program is going to affect SDBs’ ability to win federal contracts.

Thomas Boston, an economist with Georgia Tech University, told lawmakers at a recent House hearing that there are no real incentives to be a SDB.

Boston oversaw a study of minority-owned firms and found 10,000 firms never participated in the program. By not taking part, these firms had a harder time remaining viable.

“We saw they were operating at a lower revenue rate and had less access to capital as compared to non-minority owned firms,” Boston says. “That could only be attributed to discrimination.”

Boston’s study looked at 17 firms who graduated from the SDB program and six months later their revenue declined by 45 percent on average. These firms also saw fewer subcontracting opportunities and could get the necessary credit to bid on prime contracts.

Tony Robinson, executive director of the Minority Business Enterprise Legal Defense and Education Fund, testified that he has real concerns over SBA’s decision to suspend the program.

Robinson says without the program SDBs many of the challenges many minority-owned firms already face will be amplified.

“Bait and switch happens often where the prime contractor will use the minority-owned firm to win the contract and then give them minimal or no work at all,” he says.

Robinson says Congress should take action to better oversee subcontractors and pass a requirement for prime contractors to promise not to discriminate in their work before they could receive any federal contracts.

Rep. Lacy Clay (D-Mo.), chairman of the Oversight and Government Reform Subcommittee on Information Policy, Census and the National Archives, says this hearing would be one of many to come. Clay says he is committed to fixing these contracting problems.

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On the Web:

FederalNewsRadio – SBA, Navy sign MOA

FederalNewsRadio – VA proposal would give veteran businesses a leg up

Federal Register – Interim rule for SDB program

Small Business Administration – SDB program Web site