VARs Protest SBA's Delay On Proposed Changes To Small-Business Label

The move surprised solution providers--including one who has pushed for the changes for years--who are counting on the change to help them compete against what they say are companies which often qualify under existing standards but are definitely not small businesses.

Currently, solution providers who fall under North American Industry Classification System (NAICS) code 541519, defined as "Other Computer Related Services" under which a specific class of suppliers are defined as "Information Technology Value Added Resellers," are considered small businesses if they have 500 or fewer employees.

Under the proposed size standards changes, a NAICS 541519 company would be considered a small business if it has 150 or fewer employees.

Lloyd Chapman, general manager of GC Micro, a Novato, Calif.-based solution provider and president of the Microcomputer Industry Suppliers Association (MISA), said he has been pushing for changes in the way the SBA defines small businesses for over a decade, but instead has only met resistance from the federal government, which prefers to work with larger businesses.

Chapman said the SBA told him it received about 1,400 public responses during the initial comment period, of which 1,000 came via the MISA Web site. As a result, he said, he is angry that the public comment period was extended to July 2.

"The SBA doesn't want to change the definition," he said. "They got the biggest response of all time, but it was overwhelmingly in favor. It's not what [the SBA] wanted. They want to give themselves more time to let large businesses respond."

Of the 1,000 responses collected by the MISA Web site, many were from organizations such as Chambers of Commerce, which have hundreds or thousands of businesses as members, Chapman said.

Gary Jackson, assistant administrator for size standards at the SBA, said it is very common to extend the public comment period for projects with significant public interest. "A lot of groups were asking for more time to offer comments," he said.

The SBA proposed the size standard changes to simplify the definition of what is considered a small business, Jackson said. This is because, under current rules, there are 37 different measures, regarding either the number of employees or annual revenue, of what a small business is, across 1,100 different private sector industries. Under the proposed change, there will be only 10 standards based on the number of employees.

Jackson said he was not sure how many responses the SBA received during the public comment period. However, he said the majority of comments he read opposed the changes.

There were two main concerns of those opposing the proposal, Jackson said. First, many companies said they would lose their small-business status. In a number of industries, he said, changing the definition of a small business from one based on revenue to one based on number of employees would disqualify them.

The second objection is that because the definition of a small business would be based on the number of employees on a company's payroll, many companies that are heavily dependent on part-time personnel would suffer, Jackson said.

Chapman said the responses SBA has received fly in the face of reality. "Eighty-nine percent of companies in the U.S. employ less than 20 people," he said. "Ninety-eight percent are less than 100 people. But a small business is defined by the SBA as having up to 500 people. That's ridiculous."

Jackson agreed that the majority of companies in the United States have fewer than 10 employees, and that more than 90 percent have 100 or fewer employees.

"But that doesn't account for the large proportion of revenue generated in the industries," he said. "You have to look at that as well. %85 In most industries, federal contracts are a small part of the overall market. Distribution of contracts to smaller businesses don't make a big effect overall."

Sean Burke, president of GovPlace, a Galeta, Calif.-based solution provider with 35 employees, said he is completely in favor of reclassifying the size standards.

"It's not clear what a small business is [under the current size standard], especially with technologies that allow employees to generate so much more revenue than in the past," Burke said. "A 500-person company can do a lot of revenue."

Pat Edwards, vice president of sales at Alliance Technology Group, a small Hanover, Md.-based solution provider which is still new to the federal government space, said the new standard will help his company and others like it to compete. "One hundred and fifty employees is still a fair-sized company," he said.

Edwards said he cannot understand why the government does not seem to be interested in working with small businesses. "Maybe they don't have confidence in working with [small businesses]," he said. "If so, it's a shame. They should be encouraging small businesses to grow, to hire more people, to pay more taxes. The bigger guys will not grow like that."

For Chapman, who has appeared before Congress to testify on behalf of small businesses and who has committed years of his time and much of his own money to his cause, the fight goes on.

"I have done more to help resellers to sell to the government than any other organization. %85This will be great for the majority of smaller resellers," he said. "It will drive them more business, give them more opportunities. I'm going to reverse any policy the SBA has made in the last decade that hurt small resellers."

For many small businesses, the majority of their time is spent on day-to-day aspects of running their companies, which leaves little time to follow through on large issues such as changing SBA rules, Burke said. As a result, he praised and thanked Chapman for his dedication to this issue.

"Lloyd does this on his own dime," Burke said. "He travels to Washington, D.C., and meets with officials of the SBA. He's very passionate in this arena. %85 He's a gentleman we respect very well."