Depending on where you stand, what you know and what you want, the recent edict of the Small Business Administration is either perfectly reasonable, arbitrary and cruel, or fundamentally absurd.
SBA Administrator James C. Sanders has announced that special "set aside" government contracts for minority-owned small businesses will no longer be awarded to businesses that are "other than small." It seems, at first blush, an unarguable position.
But suppose you are the owner of a small business that has been existing to a major degree on the set- aside provisions of Section 8(a) of the Small Business Act, and suppose that you have been laboring under the assumption that as your business grew you would be gradually "mainstreamed." In that case, Sanders' order will strike you as cruelly abrupt.
And if the end of the 8(a) contracts has the effect of curtailing your business to the point that you are no longer "other than small," you may find the edict absurd--particularly since once you've been "graduated" out of the small-business category, you cannot again become eligible for set-asides, even if declining volume makes you once again a small businessman.
The theory is sound enough. In practice, however, it introduces some of the problems of welfare: if help is available only to the certifiably poor, those who manage to climb just out of the poverty range lose their eligibility and may end up worse off.
The recent order has its origins in a recommendation from the General Accounting Office that "SBA suspend from contracting any 8(a) firm found to be 'other than a small business concern.'" The SBA administrator interpreted the recommendation as an order.
But some minority business operators have pointed out that GAO recommendations are not necessarily binding. Normally, the comptroller general will delay six months or more before following up on a recommendation, remaining open, in the meantime, to information that might persuade him that the recommendation is inappropriate. In the present case, Sanders requested reconsideration of the recommendation (though he apparently supplied no new information) but implemented the order immediately.
He suggested that the order is not particularly damaging, since it applies to "only 25 firms" out of some 2,000 firms in the 8(a) program. But, according to one minority contractor, the affected firms are doing over $250 million dollars worth of business involving upwards of 7,500 employees. Given the near-record failure rate of small businesses this year, the 8(a) cutoff has disastrous implications.
As this contractor told me, "Sanders has refused to meet with the firms in question or their lawyers, has refused to accept the recommendations of the SBA staff responsible for the 8(a) program and has refused to employ administrative action clearly within his discretion to resolve the problem immediately."
The solution, says this businessman, is for Sanders to isssue an "interim final rule clarifying the ambiguous regulations." The long-term result would be the same. But it would give the affected businesses time to make alternative arrangements. Without that grant of time, "mainstreaming" may in many cases turn out to be just a fancy name for drowning.