The Washington area has the highest concentration of government contractors in the country. One important reason for this thriving local contracting industry is the presence of government programs to nurture small and minority-owned businesses.
The Small Business Administration administers the 8(a) program. Participating companies can benefit from quotas that require federal agencies to give a certain percentage of their contract dollars to small businesses. For some contracts, firms in the program do not have to participate in a competitive bidding process. Companies are expected to eventually wean themselves off these advantages and win jobs from private firms.
Joseph Loddo, the district director of the Small Business Administration, recently spoke to Washington Post staff writer Anitha Reddy about how the program works and a proposed change to measure the size of businesses by the number of employees rather than annual sales.
QWho is eligible for the 8(a) program?
AGenerally the business must be a small business that is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States. The business must be at least two years old and demonstrate the potential for success.
That means we would look carefully at overdue taxes or criminal records. We would also examine the experience of the management team and the products and services that they're offering. Clearly we're looking to ensure that the business has the capacity as well as the capability to perform on a contract on time.
Certain groups, such as African Americans, Hispanic Americans, Native Americans and others are automatically considered socially disadvantaged, but other individuals who can prove they have been socially disadvantaged are accepted. Economic disadvantage means that the individual has less than $250,000 in net worth, exclusive of their business and primary residence.
Could you describe the application process?
An SBA representative will answer general questions and direct the individual to the Internet Web site www.sba.gov, where he or she can access the application package. Most district offices have workshops to provide additional information. A decision will be made within 90 days of receipt of a complete application.
Once they finish the application process and they're approved for the program, they come to the district office for an orientation program and meet their business opportunity specialist. That's the beginning of a nine-year relationship.
What kind of guidance do 8(a) companies receive?
Firms are certified for a nine-year term, which consists of the developmental stage and the transitional stage. The developmental stage is the first four years and is designed to help firms overcome their economic disadvantage by providing business development assistance.
We offer workshops on how to sell to the federal government. We also send letters on behalf of the firms to contracting and purchasing officials at different agencies indicating that the firms have the capacity to perform a contract.
We also have matchmaking events. We bring in not only the federal government but large private-sector organizations. What we're doing is creating the environment for small businesses to be able to talk to users, whether it's large businesses or prime contractors of the federal government or the federal government itself.
There's an annual review process in the sense that we're monitoring the work that they're receiving. We're looking in the last five years for them to have fewer federal contracts and more private-sector contracts.
What kinds of difficulties do companies commonly experience after graduating? What kinds of companies tend to successfully overcome these obstacles?
Companies that have not adequately prepared for transitioning out of the program and have become overly reliant on 8(a) contracts will experience a decline in revenue. The firms that have developed effective exit strategies and have maintained or exceeded the required mix of 8(a) and non-8(a) contracts do not experience these problems.
This is something our advisers work on with participants, and this year we are instituting a new series of training sessions that are designed to help participants successfully manage their transition.
Is there one industry or type of company that is predominant in the program?
For the Washington area, information technology firms tend to predominate in the program. The district has some 1,300 firms [in the 8(a) program], of which 55 percent are IT firms. Other district offices have a larger representation of other industries such as construction contractors. In the Washington district, 14 percent of the businesses in the program are Hispanic-owned.
What kinds of changes are being contemplated to the size standards for qualification?
On March 18, SBA proposed revisions to our current size standards in order to reduce the confusion over what qualifies as a small business. The revisions would reduce the number of size standards from 37 to 10. The proposed size standards, if adopted, change standards now based on average annual receipts [sales] to number of employees. Most businesses are not affected by the proposed size standards; they are small under the current average annual receipts standard and are small under the proposed number of employees standard.
However, all small businesses should read the proposed rule, which can be found at www.regulations.gov/AGCY_SMALLBUSINESSADMINISTRATION.cfm, to see if it affects them. Likewise, all small businesses are encouraged to submit comments on the proposed regulation any time before July 2.