For the third time in four years, the Small Business Administration is trying to rewrite the 30-year-old rules that spell out just how big a "small business" is in the government's eyes.
The definition is important because it determines which companies can bid on more than $10 billion worth of federal procurement contracts set aside each year for small businesses and which firms can apply for $4.3 billion a year in direct or guaranteed SBA loans.
Moves to rewrite the standards have always been controversial. Small businesses worry that they will be cut from the programs, but larger companies get involved too, trying to improve their position in the competitive world of federal contracting.
SBA officials say the major thrust of the latest rewrite is not to relax or restrict eligibility, but to establish a unified standard for both the set-aside and loan programs.
While the latest proposal, announced in May, is almost as complex as the current rule, for most industries, it would define a small manufacturing firm as one with no more than 500 employes and a small retail or service firm as one with average annual sales of less than $3.5 million over their past three fiscal years.
By comparison, the current rules permit a petroleum company of any size to apply for an SBA loan. But it can bid on a small business set-aside contract only if it has fewer than 500 employes. A chartered air carrier can qualify for a set-aside contract with up to 1,500 employes, but can get a loan only if it has fewer than 1,000 people on its payroll.
In most wholesale industries, the current standards for procurement are measured by employes (usually the cutoff is 500), but standards for loans vary from $9.5 million in average annual earnings for hardware wholesalers to $22 million for auto manufacturers.
To eliminate many of the disparities that have emerged since the standards were written--in the mid-1950s in many cases--the SBA has struggled over the past few years to come up with a formula that promotes competition for small-business programs without raising the hackles of the firms.
In 1980, the Carter administration tried to rewrite the standard to reflect the relative size of similar businesses. For some, the cutoff would have been 15 employes, for others, as many as 2,500. Thus a barbershop would be considered "big"--and ineligible for SBA loans--if it had 16 employes. But in some of the manufacturing field, firms with 2,500 workers could still qualify.
More than 80 percent of the comments received by SBA opposed the proposal, according to Andrew A. Canellas, director of the SBA's size standards division.
Norman S. Salenger, a size standards analyst for the agency for 15 years, said the proposal was "an effort to rename the agency the Small and Medium-Sized Business Administration." Added Canellas, "The industry said, in general, that SBA should not be lending to a firm that has 2,500 employes."
The Reagan administration rejected that approach and in May, 1982, offered a scaled-back version changing the lowest standard from 15 to 25 employes and dropped the upper limit from 2,500 to 1,500. Again, Canellas said, "about 80 percent of the comments were in opposition." Businesses used a variety of arguments. For example, Stephen E. Donaldson, regulatory reporting manager for Powerine Oil Co., a small refiner in Santa Fe Springs, Calif., wrote that "with approximately 850 employes and an expected 1,050 upon complete staffing of our heavy oil upgrading project, we would lose qualification . . . . We are distraught."
The Associated General Contractors of America, meanwhile, said the original Reagan proposals "support our belief that SBA does not understand the industry." The group recommended "open, competitive, free enterprise" to provide "equal access to the market to all firms and provide . . . the highest quality product for the lowest possible price." A year later, the SBA tried a new tack with its current proposal. The comment period on it doesn't close until July 5, but SBA officials say they think it addresses the major concerns that industry groups have had.