"The government, perhaps inadvertently, has created a system that penalizes companies for being successful.""Penalizes"??
Contractors Find Gains Hard to Hold
After winning government contracts designated for small firms, most will expand and many become so big that they no longer qualify for the small-business contracts that enabled them to grow in the first place. [The article refers to this as a "Catch-22".]
Under a 1977 law, many federal agencies are required to set aside work for small businesses as a means of awarding 23% of all federal contracting dollars to them. Of course, the set-asides were not intended to be a permanent crutch for small companies. But making the competitive jump to medium-sized company from protected, small business has proven hard for many.
For instance, Deepak Hathiramani, founder of Vistronix Inc., a Reston, Va., technology support services company, was so unprepared for the challenges of a mid-tier contractor that his company stumbled after growing to $30 million in annual revenue.
A growing number of the businesses that provide professional services to the U.S. government say they struggle to compete against much bigger rivals once they successfully become mid-sized firms. Indeed, firms above the small-business designation but which still had less than $3 billion in annual revenue got 34% of government professional-services contracts in 2010, compared to about 40% in 1995, according to a report from the Center for Strategic and International Studies in Washington, D.C., to be released this month.
Mid-Tier Advocacy, a Washington, D.C.-based lobbying group formed early last year to advocate for businesses that have outgrown the small-business size standards, hopes to make the transition easier. "There is no category or recognition of mid-sized firms," says Tonya M. Speed, the group's executive director. Many inevitably surpass the size limits, she adds, and consequently, "they are competing with companies that are sometimes more than 30 or 40 times their size."
"The government, perhaps inadvertently, has created a system that pnalizes companies for being successful," says Robert Burton, a former deputy administrator of the Office of Federal Procurement Policy under the Bush administration, who is now a Washington, D.C., lawyer in private practice.
Rep. Gerald Connolly (D-Va.) recently proposed legislation that would give mid-size firms with less than 1,500 employees an opportunity to compete for select contracts before the competition is open to larger companies.
But several small-business groups oppose such changes. "Instead of creating a new program, take care of the problems we know exist today" such as meeting the 23% contracting goal for small firms, says Margot Dorfman, chief executive of the Washington, D.C.-based Women's Chamber of Commerce.
Related posts:
The perils of preference
Small steps taken to boost small business
One pill makes you larger, and one pill makes you small
When preference turns to privilege
It all depends on how you describe "small" -- and "business" -- and why
Related other:
SBA contract errors are result of deception
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