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Contracts: How Big Is Small?

Just when does a small business outgrow its status as small? For years, that question has been a sore point for the Small Business Administration.

Critics have often complained about the administration's certification procedures, which let small businesses receive highly coveted government contracts and continue to keep them, even after they've outgrown their "small" status or have been acquired by larger companies. In hopes of remedying the situation, the SBA announced new rules in November. Small businesses that receive government contracts will now have to be recertified by the SBA after five years, and again at the end of each option to renew. The law goes into effect June 30, 2007.

The SBA Inspector General had recommended annual recertification, a tactic unanimously endorsed by the Senate Committee on Small Business & Entrepreneurship. But recertifying every year "was just too disruptive," says Karen Hontz, the SBA's counselor to the administrator. One factor, she notes, is that the administration typically looks at three years' worth of employee or revenue data to make a determination.

In the past, businesses were considered small for the life of a contract, which could last 20 years. "Our thrust is to make sure we have accurate data and to make sure we create an environment for other small firms to get into the process," says Calvin Jenkins, the SBA's deputy associate deputy administrator for government contracting and business development, adding that there are currently between five and six million existing and proposed small business contracts. Companies that don't get recertified won't have to give up their contracts, but the agencies that have hired them will no longer be able to count that business as part of their small business set-asides.

By Jeremy Quittner

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