Small businesses must go to federal court to challenge Small Business Administration size standards. But costly litigation is not a realistic option for small companies like Oculus, a 26- person architectural firm in St. Louis, Missouri, the firm’s executive Vice President Ronald Reim told the House Small Business Subcommittee on Contracting and the Workforce.

The committee is considering a bill that would let firms challenge the agency through an administrative process as well. Under the legislation, a firm would have to file a complaint with the SBA Office of Hearings and Appeals within 30 days of a new size standard’s publication in the Federal Register.

“Compared to litigation, it’s a fairly simple process,” said attorney Jim Fontana, who represents the Small Business Value Added Reseller Consortium. “They are paper exchanges, usually one each. After that, you’d have judicial review of that process if the parties so desire. So it does introduce a much-less expensive process that small companies would be able to afford, comparatively.”

The SBA sets size standards for industries once every five years. Congress passed a law two years ago instructing the agency to change its process to better reflect current economic conditions. The SBA intends to implement the changes some time next year. But lawmakers and small contractors fear the agency will decide on many new size standards between now and then.

Concerns Thursday centered on the SBA’s attempts to group similar industries together under common size standards, contrary to  the 2013 law. While the proposed rule would simplify the agency’s system, Roger Jordan, who testified on behalf of the Professional Services Council, said the SBA should move in the opposite direction. Rather than streamlining its size-standard process, it should take a more granular approach, he said.

“They want to limit the number of different size standards that are out there. That makes little sense when you consider the variation and the vast number of industries that are comprised within the NAICS code structure,” he said, referring to the North American Industry Classification System used to group businesses. “It’s almost as if each industry should be assessed on its own merits.”

SBA proposals could let larger firms compete for set-asides 

The SBA’s size standards can alter whole industries that depend on federal contracts for growth, Reim said. His firm survived the recent recession only because it had won federal awards reserved for small businesses, he said. Now it’s on the upswing.

Contracts with the Veterans Affairs Department have let his firm take on big projects, with larger companies as consultants, that it never would have been able to do otherwise, he said. It has leveraged that experience to attract private- sector clients.

“We’re a local company providing local jobs and keeping expertise in the local community. If companies like ours weren’t allowed to mature, there would be really large firms and small firms and nothing in between” he told the committee.

He fears the SBA’s new proposal to resize architecture and engineering firms together would let much bigger architectural firms compete for the same set- asides.

“Lumping us together with engineers and raising the definition of a small architectural firm would be crippling to our firm, as well as to a multitude of talented emerging practices, essentially forcing them to compete with firms five or even 10 times their size,” Reim said. “It would very likely result in the consolidation of architecture practices and a loss of jobs.”

He also challenged the SBA’s emphasis on revenue, rather than workforce size, to determine whether a business is truly small. Many architectural firms serve as “collection points,” he said, collecting revenue from clients and passing it on to subcontractors. Thus it appears that they are making more money than they actually are.

Other companies fear being deemed “too big” 

An industry that has benefited from the reverse situation also worries about the SBA’s criteria. IT value-added resellers are classified according to the number of employees they have. But the SBA plans to change the criteria to emphasize revenue, in line with similar industries.

“Forty-three percent of IT VARS that were considered small would not be considered if this proposal would go forward,” Fontana said.

In support of the bill, he said, “Businesses should have the ability to challenge this administratively.”

“Having this mechanism would allow the companies to challenge SBA’s, in this case, simply not following the law,” he said.

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