Less is more; very small businesses get a bigger piece of the pie

Entrepreneur, Dec, 1998 by Stephen Barlas

Small companies may see big procurement opportunities with the help of a new SBA program. Under the new Very Small Business (VSB) set-aside pilot program, federal contracts of $2,500 to $50,000 will be reserved for companies with fewer than 15 employees if the federal agency offering the contracts gets bids from at least two VSBs.

"These businesses are proven job creators, but they've been inhibited by their size in competing for lucrative federal contracts," says Aida Alvarez, SBA administrator.

Under the federal government's "simplified acquisition" program, federal contracts of less than $100,000 are already reserved for small businesses, as long as more than one company bids on them. But the SBA's definition of small business differs on a sector-by-sector basis and can include companies with as many as 1,500 employees. Thus companies with fewer than 15 employees are at a disadvantage even within the under-$100,000 category. Besides employing fewer than 15 people, companies must have average annual sales of less than $1 million to qualify.

The pilot is scheduled to run until September 30, 2000, in Louisiana, Massachusetts, Michigan, New Mexico and numerous counties around the cities of Los Angeles; Philadelphia; El Paso, Texas; Santa Ana, California; and Columbus, Ohio.

The good news may be tempered by the existence of programs already in place, however. The SBA's 8(a) companies - run by minorities and women - will still have first dibs on all under-$50,000 contracts, according to the SBA's Judith Roussel. The 8(a) program holds that federal contracts for services under $3 million and manufactured goods under $5 million can be awarded to 8(a) companies on a sole-source, noncompetitive basis. If the federal agency agrees the 8(a) company can perform the work, the contract can be awarded as a sole-source contract.

Starting this month, some contracts will be set aside for companies located in HUBZones (Historically Underutilized Business Zones). Nationwide, 1 percent of all federal contracts must be set aside for HUBZones in fiscal year 1999; that figure increases to 3 percent in 2003.

The SBA estimates there were 247,381 federal contracts for less than $50,000 awarded in fiscal year 1997. They had a total dollar value of nearly $5.2 billion and amounted to approximately 2 percent of all federal contracts. That 2 percent may sound fairly small, but for small companies that can now get a piece of them, the contracts hold huge possibilities.

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Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.