Small Business Contracting With the Government

Small business contracting is something that every government contractor — large or small — needs to know about. Considering that both government agencies and large business prime contractors are required to buy some of their needs from small businesses, large and small contractors need to know how to use the small business contracting rules to their best advantage.

First and foremost, a contractor needs to know whether it is considered a large or small business for government contacting purposes. This can be determined from the Standard Industrial Classification (SIC) codes found in 13 CFR §121.201. For example, SIC code no. 3663 for manufacturers of radio and television communications systems and equipment lists 750 employees as the small business limit. A television equipment producer with 751 employees is thus a large business, while a manufacturer with 750 employees or less is considered a small business. In determining size, it is also important to consider whether the business is owned, controlled, or affiliated with a large business.

When issuing a solicitation, the government assigns the SIC code it believes is most appropriate for the contract. A business must fit within the SIC code selected in order to be found a small business for that contract. Depending on the SIC code chosen for each particular procurement, a business can be considered large for one contract and small for another.

There are several different basic types of small business contracting arrangements a contractor can use in selling to an agency. These are small dollar amount purchases, blanket purchase agreements, small business set-asides, small disadvantaged procurements and Small Business Administration (SBA) 8(a) contracting.

Small purchase procedures govern the acquisition of goods under $25,000. Small purchase procedures are relatively informal and usually do not require publication of the procurement in the Commerce Business Daily (CBD). Generally, agencies must buy goods expected to cost under $25,000 from small business manufacturers, unless the goods are not available from a responsible small business concern or are available on a mandatory GSA Schedule. If a small business does not manufacture the required goods, then the agency can buy goods manufactured by large businesses from a small business dealer as long as the goods are domestically produced. Otherwise, if the goods are not available from a small business, a large business concern may sell directly to the government.

A blanket purchase agreement (BPA) is a type of small purchase that allows an agency to establish a “charge account” with qualified sources. BPAs are used to reduce an agency’s administrative burden by allowing it to buy goods repeatedly from a particular contractor. A BPA does not obligate the agency to buy any goods from the contractor. Also, each order placed under a BPA should not exceed the $25,000 small purchase limitation, unless the BPA is placed with a GSA Schedule contractor. Unlike a GSA Schedule, however, which allows sales government-wide, a BPA is entered into with only one agency at a time.

Small business set-asides are procurements set-aside exclusively for small businesses. A determination to set-aside a contract for small businesses is the unilateral decision of the contracting officer. A small business responding to a set-aside must provide its own goods, or if acting as a dealer, goods domestically manufactured by a small business. Small business set-asides must specify the SIC codes applicable to the procurement. A set-aside may be withdrawn if responsible small businesses do not respond to the solicitation or if the cost of the set-aside exceeds the fair market price for the goods solicited.

The Department of Defense (DOD) has special regulations governing purchases from small disadvantaged businesses (SDB). An SDB is a small business owned and controlled by persons deemed economically disadvantaged, such as African or Hispanic Americans. Under these regulations, DOD activities may set-aside contracts exclusively for SD’s or may give SDBs an evaluation preference by adding 10 percent to the cost of the non-SDB offers.

Under the SBA’s 8(a) program, certain businesses owned by persons found socially and economically disadvantaged work together with the SBA for a fixed number of years to contract with government agencies. The goal of the program is to nurture disadvantaged businesses toward standing on their own upon graduation from the 8(a) program. In an 8(a) contract, the agency contracts with the SBA, which in turn subcontracts to the 8(a) concern. Special rules limit the participation of large businesses in an 8(a) contract. Generally, the 8(a) contractor must provide at least 50 percent or more of the required labor and the products of small business manufacturers.

Large and small businesses often work together in marketing to the government. Small businesses can provide large business products for purchases under $25,000 or by selling large business products under a GSA Schedule. Large business can subcontract with small businesses to meet their small business subcontracting plan quotas.

Small business contracting provides large and small government contractors with unique marketing opportunities. Small businesses can gain an advantage over large by marketing to the government under small business contracting procedures. Large businesses can work together with small businesses, or in the right circumstances, work to keep a procurement unrestricted. For either large or small contractors, small business contracting is a area that no contractor can ignore.