The Small Business Administration (SBA) is tasked with maintaining the Size Standards that determine if a Company is a Small Business, or not. There is such a multitude of industries, and each one has a multitude of sub-categories (each with their own size standard). It can leave your head spinning. Below is a simple instructional to help you determine if you meet the SBA’s Small Business Size Standards.
Why is Small Business Size Important?
First, lets consider the importance of this topic. Money is important to you (I assume), so consider that we are talking about a $92 Billion market. In the Government Contracting world, the term “Set Aside” means that a particular opportunity is restricted to only one type of company. There are many “Set asides” including Veteran-owned, Woman-owned, Minority-owned. However, the most utilized set-aside is Small Business which made up 25% of governmentwide Contracts in FY 2014 (totaling $92 Billion, Source). But, how does a Contractor know if they qualify as a Small Business?
How to determine if a Contractor is a Small Business
- Small Business Size Standards are either based on the Annual Receipts or the Number of Employees. So, you will need to gather this information first.
- Annual Receipts – Averaged over the past 3 years
- Number of Employees – For each of the pay periods for the preceding completed 12 calendar months
- You will need to gather a list of the NAICS Codes that apply to your company. HERE is a tool to locate the Naics Codes that apply. Simply type in keywords into the search field at the top left of the navigation (like “engineering” or “computer programming” or “plumbing”).
- Once you know your NAICS Codes, you must search them individually, because there is a different Size Standard for every NAICS Code. HERE is a download of the SIze Standard by NAICS Code. (If that link has gone dead, Click HERE)
- Once you have your size standards, it is time for you to compare them to your Annual Receipts or Number of Employees (whichever applies to each NAICS Code) to determine your Small Business size.
What are the penalties for Misrepresentation?
This is an important consideration whenever you respond to an RFQ. HERE is the official SBA verbiage addressing how misrepresentation is handled when found. Below are some main points:
- “In every contract, subcontract, (…) there shall be a presumption of loss to the United States based on the total amount expended (…) whenever it is established that a business concern other than a small business concern willfully sought and received the award by misrepresentation.”
- This (and 2 other paragraphs) “may be determined not to apply in the case of unintentional errors, technical malfunctions, and other similar situations that demonstrate that a misrepresentation of size was not affirmative, intentional, willful or actionable under the False Claims Act …”
- Penalties for Misrepresentation could potentially include: Suspension or debarment, Civil Penalties (under False Claims Act), and/or Criminal Penalties.
How Does the SBA Determine Size Standards?
Just in case you are curious how the SBA comes up with their Small Business Size Standards, HERE is the full answer. You will get a general impression of the process below:
SBA considers economic characteristics comprising the structure of an industry, including degree of competition, average firm size, start-up costs and entry barriers, and distribution of firms by size. It also considers technological changes, competition from other industries, growth trends, historical activity within an industry, unique factors occurring in the industry which may distinguish small firms from other firms, and the objectives of its programs and the impact on those programs of different size standard levels.
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If You’re Only a Small Business for some NAICS Codes
This is definitely a possibility for some Contractors. Keep in mind that you are considered a Small Business for some NAICS Codes, and a Large Business for others. So, if you win a contract as a Small Business, then you must make sure that your Small Business NAICS Codes are listed.
Also, if your Large Business NAICS Codes are listed on a Contract, then you must learn what those products/services are (memorize the NIACS descriptions), and steer clear of that type of work unless the contract outlines that these are exempt from any Small Business size requirements.
So, it is very helpful if you have a working knowledge of all this up-front and work with the Contracting Officer to make sure that the contract is drafted to favor your Small Business NAICS Codes, and to outline that your Large Business NAICS Codes are exempt (or stricken). Yes, you can ask the CO to modify their RFQ to include (or exclude) NAICS Codes. If they say ‘No” that opportunity is probably not for you anyway because an incumbent has a stronghold.
Final Thoughts on Small Business Size Standards
The most utilized set-aside is Small Business which made up 25% of governmentwide Contracts in FY2014.The Small Business Administration (SBA) is tasked with defining what a Small Business is. Among the diversity of industries, the SBA has created a large list of Size Standards based on NAICS Code. I hope that the instructions helped you determine if you meet the SBASmall Business Size Standards, and even educated you further into why this is a very important topic for Government Contractors.
Disclaimer on this Post
- Size Determinations can be used for several purposes, but the focus of this post is within Federal Contracting (Not SBA Loans).
- There are complicated factors that can play into this, such as affiliated entities, the ostensible subcontractor rule, the non-manufacturer rule, various mentor-protégé rules. So, complete your Due Diligence to assure that your self-certification is 100% accurate.
- There are many links to the SBA website’s specific instructions, and all readers are encouraged to take any action based on content issued from the SBA. GSA Focus takes no liability for any actions taken by a Contractor from the content of this post.