The 2011 U.S. federal budget consists of approximately $3.82 trillion of expenditures. With a projected U.S. Gross Domestic Product of $15.3 trillion, federal government expenditures account for nearly 25 percent of our economy. As a business owner, if one customer type accounts for 25 percent of your potential sales universe then you shouldn’t ignore them. On the other side of the equation are the federal agencies that have to spend their budgets. The current policy is to increase procurement from small businesses whether through direct contracting or subcontracting.
A key way that this directed procurement takes place is through small business set-aside programs. These procurement programs typically limit the scope of companies that can bid on a contract to those qualified as “small businesses.” By competing for these contracts, small business owners avoid the challenge of competing against large, entrenched government contractors.
How The SBA Helps Bigger Companies…Get Smaller
What exactly is small?
The Small Business Act defines “small” in the context of federal government procurement. There are two components to being classified as small.
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First, your company cannot be “dominant in the field of operation for which it is bidding on a government contract.”
Second, it must fall below the size standards listed in Title 13, Code of Federal Regulations, part 121. Part 121 lists the size standard in terms of annual revenues or number of employees for each NAICS code. For example a rice farm (NAICS code 111160) is considered small if it generates less than $750,000 a year in revenues. A fresh fruit and vegetable wholesaler is considered small if it has fewer than 100 employees. There are some exceptional cases that use a different metric for “small.” An international trade finance company is considered small if it has less than $175 million in assets.
In cases where employee count is the determining standard, “employees” is used broadly. It includes everyone employed on a full-time, part-time or other basis. This means temporary workers also count. Part-time employees are counted the same as full-time employees.
The challenge with small business set-asides
What may have been considered small 10 years ago may not be considered small today. Many businesses that are still small for all intents and purposes and do not dominate their industry have brushed up against the size limits that disqualify them for small business set-asides.
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