Federal Small Business Size Standards Increase

Reid Middleton is about to become a small business for federal contracting – something we have not been for 20 years or more. How did one of the top 25 engineering firms in Washington, with more than 300 federal civil, environmental, and structural engineering, construction support, and surveying projects in the last 10 years become classified as small? The answer: Reid Middleton hasn’t changed; the federal classification of a small business has changed around us.

For engineering firms, the small business size standard has been $4.5 million in annual revenue since 2005. On March 12, 2012, The Small Business Administration (SBA) is changing the criteria to $14 million.

Why change the size standards?

Why the sudden change to triple the size standard? Well, it really hasn’t been sudden. As early as 1999, SBA proposed increasing the size standard to $7.5 million. In 2007, the SBA again proposed changing the size standard to $7 million, but it received negative comments from industry, and the proposal was dropped. One year ago, the SBA published a proposed change to increase the size standard to $19 million. After receiving a plethora of comments both for and against with suggestions for a new standard in-between, the SBA settled on $14 million. The rule change was officially published on February 10, 2012, in the Federal Resister, with a March 12, 2012, effective date.

The challenge is to determine what defines a small business. SBA does an industry analysis using data from the Federal Procurement Data System – Next Generation (FPDS-NS), Central Contractor Registration (CCR) and an Economic Census. Reading through the summary of the comments, two themes seem to emerge: the ability to compete with large businesses and the ability to perform work needed by the federal government.

Leveling the playing field

Under the old standard, the concern was whether a firm of $5 million annual revenues could compete successfully against large businesses in its service area, i.e., engineering services. One of the trends in the A/E business is the largest firms continue to grow faster than the industry as a whole, becoming even bigger relative to smaller firms. By example, for the five years preceding 2009, the Engineering News Record (ENR) top 500 engineering firms grew 50 percent in total revenues, while the top five firms on this list grew 100 percent in total revenues, essentially doubling the growth of the rest of the industry. The SBA analysis indicated that under the larger size standard, the top 10 percent of the firms in the industry would still have performed 71 percent of the work. So, as the largest firms get even larger relative to the small firms, the definition of ‘small’ needs to increase to level the playing field.

The ability to successfully perform the scope of work typically required for federal facilities is dictated by firm size.  A recent trend of the federal government (particularly in military work) has been to increase the dollar limits of Indefinite Delivery /Indefinite Quantity (ID/IQ) contracts. These contracts generally last several years and include many delivery orders for separate facility designs. The increased dollar limits on ID/IQ contracts allow the government to easily acquire good-sized design services, procuring individual design for only the largest projects (this has happened on the construction side too – but that is another topic). These high dollar figure ID/IQ contracts have traditionally been held by large businesses because of the breadth and depth of capabilities required and the amount of work having the potential to overwhelm a small business. It is conceivable that with a larger small-business standard, these contracts could be set aside for only small business competition, because small businesses can now demonstrate capability and capacity to meet the requirements of these contracts.

Opportunities abound

So, Reid Middleton is now a small business under federal guidelines, and we remain highly capable in our diverse practice with great depth through our areas of expertise. We continue to practice in a wide variety of market sectors, working across the entire western United States, Alaska, and the Pacific. This change in designation by the SBA simply means more opportunity and versatility in the kinds of projects companies like ours can pursue.

To see the entire SBA determination, follow the link below:

Federal Register