New Policy Could Clear the Way for More Small Business Teaming

Original Article: Washington Business Journal

Small business owners often increase their chances of federal contract success through teaming. But they’ve also got to steer clear of otherwise strategic partnerships with each other that can disqualify them from key opportunities. It’s high time that changed.

Federal contracting rules define two companies to be “affiliated” if one partner has (or even appears to have) undue control or reliance on another, or if both are similarly controlled by a third party.

Affiliation is a major concern for teaming partners pursuing federal contracts set aside under the programs for small business. A partnership between affiliated companies is only eligible for a set aside if the combined size of the partner companies — measured by employees or revenue —falls below the small business size standard for that contract.

(It’s worth noting that a small company who joint-ventures with their large mentor under the Small Business Administration’s 8(a) Mentor-Protégé program is exempted from that provision.)

Why such stringent parameters? The rules make the most sense when you consider the situation in which a small prime contractor partners with a large subcontractor. Absent the clear definition of relationship specified in a mentor-protégé agreement, small firm could tap into the large firm’s resources and expertise in ways that give the small company hugely unfair advantages over other small businesses competing for that same set-aside.

But right now, those rules can also lock out two small firms who undertake a similar joint venture: they risk affiliation if their combined revenue or head count exceeds the procurement’s small business size standard. That situation makes little sense. The purpose of the set-aside is to help federal contract dollars get into the hands of small businesses. If a joint venture made up of all small businesses wins a set-aside, then doesn’t such a winning JV contribute to that goal?

The administration agrees. In December, the SBA proposed to change the rules, explained why, and asked for comments. Under the proposed change, small businesses would be able to team without concern of exceeding the size standard on a federal set-aside contract so long as all partners meet the criteria for the specified set-aside program.

In other words, if a procurement is set-aside for a business located in a highly underutilized business zone, known as a HUBZone, then two HUBZone companies may team without fear of busting the size standard. However, the HUBZone company could risk disqualification on that procurement if teamed with a small disadvantaged business certified under the 8(a) program.

What do you think? Tell SBA. Comments are due February 27 at www.regulations.gov.