Size Standards | The Contracting Education Academy

January 15, 2018 By AMK

GAO looks at NAICS code assignments, SBA clarifications, and industry views

Agencies’ contracting officers consider various factors in assigning North American Industry Classification System (NAICS) codes to federal contracts, and the Small Business Administration (SBA) issued a rule in 2013 intended to clarify NAICS code assignment.

NAICS codes are the basis for SBA’s size standards; therefore, the code that the contracting officer assigns determines whether a firm is eligible for federal contracting preferences, such as small business set-asides.

NAICS Code Assignment Within the Acquisition Process

The Government Accountability Office (GAO) recently studied this activity and learned that contracting officers (COs) cite several factors that affect their assignment of NAICS codes, including information on the work to be performed and input from agency small business specialists. However, the COs also told GAO that assigning a NAICS code can be challenging when one or more codes could apply to a contract.

In the 2013 rule, SBA clarified that under certain circumstances, COs may assign more than one code to multiple-award contracts. Such contracts are awarded to two or more contractors under a single solicitation and include indefinite delivery/indefinite quantity (ID/IQ) contracts used when quantities and timing are not known at the time of the award. However, updates to the Federal Acquisition Regulation (FAR) — the rules governing the federal government’s purchasing process — are required to fully implement SBA’s final rule. The agencies GAO interviewed plan to implement this rule after it is adopted into the FAR and they can make necessary updates to their information technology for contracting. This FAR rule-making process is ongoing.

In a report released by the GAO on Jan. 4, 2018, the GAO reports that some industry groups and firms have expressed concerns about how COs assign NAICS codes even though SBA’s Office of Hearings and Appeals (OHA) dismissed most appeals and denied more than half of the remaining appeals. Some industry groups and firms GAO interviewed expressed concerns that COs may assign NAICS codes based on the size standard (thereby affecting the number of firms that can compete as a small business) and not the work to be performed. However, some also stated it was difficult to determine how often this practice occurs, and OHA officials noted it is the office’s role to review the appropriateness of appealed NAICS codes, not the contracting officer’s intention when assigning the code. Of the 62 NAICS code appeals that were filed in calendar years 2014 through 2016, OHA dismissed 35, denied 15, and granted 12. Appeals were dismissed because, among other things, they were untimely or the contracting officer cancelled the acquisition.

GAO’s full report examines: 1) what COs consider when assigning NAICS codes to federal contracts and the status of efforts to clarify code assignment and 2) industry views on NAICS code assignment and the number and outcomes of appeals. The report can be downloaded here.

July 27, 2016 By AMK

Settlements reached with 3 Puerto Rico firms for misrepresenting small business status

The Justice Department and the Nuclear Regulatory Commission have reached a financial settlement of $132,000 with three entities that allegedly misrepresented their small business status in order to pay reduced nuclear material handling fees.

While denying the allegations, the three entities — Constructora Santiago II, Corp., Centro Cardiovascular and Hospital Del Maestro — collectively agreed to pay the settlement.

In order to possess and handle radioactive materials, an entity has to obtain a license from the Nuclear Regulatory Commission (NRC) and pay an annual fee. The NRC permits companies to pay a reduced fee if it qualifies as a small business.

In order to certify small business status, a business must average gross receipts of $7 million or less over its last three completed fiscal years. Each small business entity is required to complete a form certifying that it meets the criteria to qualify as a small business entity.

According to the settlement agreements, Constructora Santiago II, Corp., Centro Cardiovascular and Hospital Del Maestro falsely certified that each had gross receipts of less than $7 million when the government contends that in fact, all three companies had gross receipts that greatly exceeded $7 million. As a result of their false claims, each of the three entities paid reduced NRC license fees.

Source: https://www.justice.gov/usao-md/pr/united-states-reaches-settlements-three-puerto-rico-entities-falsely-certifying-small

March 9, 2012 By AMK

Signs of friction in contractor-government relations

Contractor relationships with federal auditors and contracting officers deteriorated somewhat during the past year as government agencies scaled back programs in an effort to reduce the budget deficit, according to a recent survey.

A separate study released Thursday found that large companies were securing a high percentage of federal contracts set aside for small businesses. In the 17th Annual Government Contractor Industry Survey released Monday by Grant Thornton LLP, contractor relationships with auditors were rated either fair or poor by 19 percent of surveyed companies, up from 11 percent the previous year. Relationships with contracting officers were rated fair or poor by 10 percent of respondents, double the previous year’s total.

Only 22 percent of respondents said the government resolved contract disputes efficiently, a drop from previous surveys.

Revenue from government contracts during the past year grew for 50 percent of the companies, was flat for 21 percent and declined for 29 percent, the survey found. “The fact that the highest percentage of companies experienced revenue growth continues a long-term trend reported in previous surveys, indicating that government contractors are far less vulnerable than commercial companies to recessions or slow growth in the overall economy,” Grant Thornton analysts said.

“However, the 29 percent of companies experiencing revenue reductions is the highest percentage reported in several surveys, indicating that government efforts to reduce deficits are adversely impacting government contractor revenue.”

The survey went out to an unspecified number of companies, in 24 states, that depend primarily on federal contracts; most of them are for-profit and two-thirds provide services to the Defense Department. Forty-six percent are small businesses.

The survey also found that profits improved slightly from the previous year. The biggest cost factor within these firms was executive compensation, and survey analysts said they disagreed with the methods the Defense Contract Audit Agency uses in determining whether to allow such costs.

“While government contracting has never been a model of efficiency, it is our view that the decline in efficiency and business relationships during the past few years can be traced directly to changes in DCAA policy adopted after [Government Accountability Office] reports were issued in July 2008 and September 2009,” they wrote.

“Unfortunately, the GAO criticized the DCAA for having a management and agency culture that focused on a production-oriented mission, emphasizing the need for timeliness in supporting the needs of contracting officers in the procurement process,” the survey said.

Regarding the average time for contractors to collect accounts receivable from the government, results showed the period was less than 30 days for 21 percent of survey participants, while 60 percent reported receivables were collected within 30 to 60 days. The remaining 19 percent reported waiting more than 60 days.

The average win rate on proposals submitted in a competitive environment was 30 percent.

On the topic of revenue by type of contract, the companies said, on average, 45 percent of revenue was from cost-reimbursable contracts and 35 percent was from time-and-materials contracts. The remaining 20 percent was from firm fixed-price contracts.

When asked how often they were required to perform out-of-scope work without a contract modification, 81 percent said frequently or occasionally. Only 16 percent said they refused such requests.

A separate contracting study by the Petaluma, Calif.-based American Small Business League found that of the top 100 companies receiving federal small business contracts, 72 were large companies that “significantly exceed” the Small Business Administration’s small business size standards; only 24 were “legitimate small business,” the league said.

The large companies — among them Lockheed Martin Corp., Rolls-Royce, Boeing Co., General Dynamics and Blue Cross Blue Shield — accounted for $16 billion of the $21 billion total for the top 100, the study found.

— by Charles S. Clark, Government Executive, February 23, 2012 at http://www.govexec.com/contracting/2012/02/signs-friction-contractor-government-relations/41283

March 5, 2012 By AMK

SBA redefinition of small business draws mixed reactions

As the Small Business Administration redefines exactly how big a small business can be, it faces mixed reactions from lawmakers and small business groups.

SBA published its new guidelines in the Federal Register on Feb. 10, with the rules scheduled to go into effect March 12. The comprehensive review in size standards, the first SBA has undertaken since the early 1980s, determined that larger businesses in 34 industries and three sub-industries in the professional, scientific and technical services sector could be considered small businesses.

Under the new rules, more weight is placed on business structural characteristics, including average firm size, the degree of competition and federal government contracting trends, in order to cast a broader net over businesses eligible for government programs. SBA estimates that as many as 8,350 additional firms will become eligible for its programs as a result.

The National Federation of Independent Business, a lobbying organization that represents about 350,000 small businesses across the country, defines anything that is not publicly held as a “small business” for purposes of membership. NFIB spokeswoman Jean Card, however, emphasized that more than 70 percent of the group’s members have 10 employees or fewer, and 97 percent have 50 or fewer.

Card noted that defining small business is no easy task. “I don’t envy them,” she told Government Executive, but added she was “not real clear on why the definition changed.”

Small businesses, Card said, are looking for more government help with issues like tax regulation and health care policy.

The National Small Business Association, a nonprofit membership organization, will be talking with its members next week regarding the advantages and disadvantages of SBA’s move. NSBA limits its membership to businesses with fewer than 500 employees and does not distinguish by industry or revenue.

“We have a few general concerns with it lumping together businesses that have different interests and concerns — for example, the lumping together of architecture and engineering firms,” NSBA spokeswoman Molly Brogan said of the new classification system.

Some congressional lawmakers unhappy with SBA are seeking to implement new legislation that would require the government to see small businesses in a different light.

“If the size standards are adjusted then we don’t need to change the definition, but we do need complementary incentives for advanced [and] growing small businesses,” said Rep. Gerry Connolly, D-Va., co-author of the Small Business Protection Act, which was introduced in the House on Feb. 8.

The bill, also co-authored by Rep. Joe Walsh, R-Ill., seeks to redefine the size standard for each small business category so that it remains within each group’s North American Industry Classification System code, according to a Feb. 8 press release from Walsh’s office.

As part of President Obama’s fiscal 2013 budget proposal, SBA received a 30-percent boost in federal funding from fiscal 2011 actual discretionary expenditures.

— by Andrew Lapin – Government Executive – February 15, 2012 – http://www.govexec.com/contracting/2012/02/sba-redefinition-small-business-draws-mixed-reactions/41215/.

February 28, 2012 By AMK

SBA opens doors to more firms by increasing size limits

Federal agencies soon will have a larger pool to draw from for their small-business procurement programs.

The Small Business Administration increased the size standard for technology companies as well as for 33 other industries under a final rule published Feb. 10 in the Federal Register.

The move means about 8,350 additional companies are now eligible to compete for federal contracts as a small business.

The final rule will increase 37 of the revenue-based size standards in 34 industries and three sub-industries in the “Professional, Scientific and Technical Services” sector. It will also increase one size standard in the “Other Services” sector.

Size standards are used to determine eligibility for federal small-business assistance programs. SBA measures “size” for most industries by receipts and number of employees. It defines receipts as the total income plus cost of goods sold.

The higher revenue limits cover the professional, technical and scientific sectors and will take effect on March 12.

Technology firms offering computer programming, maintenance and design services, for example, can now earn $25.5 million, up from $25 million.

The Management, Scientific and Technical Consulting Services sector received an increase from $7 million to $14 million. Public commenters in this sector, who supported the increase, highlighted that the higher size standard will help small businesses to develop to be able to compete against large businesses for federal contracting opportunities.

“Over the years, SBA has received comments that its size standards have not kept up with the changes in the economy, in particular, that they do not reflect changes in the federal contracting marketplace and industry structure,” the final rule noted.

“SBA recognizes that changes in industry structure and the federal marketplace since the last overall review have rendered existing size standards for some industries no longer supportable by current data,” it adds. Size standards were last comprehensively reviewed in the early 1980s.

With more than 8,000 newly defined small firms under the revised size standards, there may be some additional administrative costs to the federal government associated with additional bidders for federal small-business procurement opportunities and more companies seeking SBA guaranteed lending programs or eligibility for enrollment in the Central Contractor Registration’s Dynamic Small Business Search database, the Federal Register said.

Click here to find a summary of size standard changes.

About the Author: Alysha Sideman is the online content producer for Washington Technology. This article was published on Feb. 10, 2012 at http://washingtontechnology.com/articles/2012/02/10/sba-increases-size-limits.aspx?s=wtdaily_140212.

Agencies’ contracting officers consider various factors in assigning North American Industry Classification System (NAICS) codes to federal contracts, and the Small Business Administration (SBA) issued a rule in 2013 intended to clarify NAICS code assignment.

NAICS Code Assignment Within the Acquisition Process

The Justice Department and the Nuclear Regulatory Commission have reached a financial settlement of $132,000 with three entities that allegedly misrepresented their small business status in order to pay reduced nuclear material handling fees.

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