Photo By: History in HD
For many federal contractors, growing a business is a major goal. Yet reaching the next level can also create a difficult challenge. A company can successfully expand beyond the government’s definition of a small business and suddenly find itself competing against companies that are many times larger. Those larger contractors may have more employees, greater financial resources, more sophisticated infrastructure, established contract vehicles and decades of experience managing federal programs. A growing contractor may have a strong record of success, but still be at a significant disadvantage when it enters the broader federal marketplace.
This is the problem the Small Business Administration, or SBA, is trying to address by considering higher size standards. The idea is to give growing contractors more time to build their businesses and prepare for full-and-open competition before they lose their small-business status. For companies approaching the current size limits, that additional time could be valuable. A contractor may have developed a strong reputation with government customers, built a capable workforce and successfully completed several federal contracts. However, it may still lack the scale needed to compete effectively with the largest companies in the industry.
Once a company exceeds the applicable size standard, it can lose access to certain small-business opportunities. It may then have to compete for more unrestricted contracts against businesses with substantially greater resources and experience. That transition can create a difficult gap between being a successful small business and becoming a competitive large federal contractor. The challenge is particularly important for companies that have demonstrated they can succeed in the federal market but have not yet developed the infrastructure and resources of the industry’s largest players.
Joanne M. Frederick, CEO of Government Market Strategies, said the issue deserves attention but cautioned that raising size standards alone may not address every challenge facing federal contractors.
“There is a real problem here that deserves to be fixed, but we need to be careful that the fix isn’t worse than the symptom. Raising the size standards may help more mature companies make the transition to full-and-open competition, but without also examining past-performance requirements, we could make it significantly harder for newer businesses to ever get the opportunity to grow. You can’t build past performance if you can’t win the work in the first place.”
Frederick’s comments highlight an important part of the debate. While more established small businesses may need additional time to prepare for competition against larger companies, newer businesses also need opportunities to win their first contracts and develop the experience needed to grow. The federal contracting system depends on a steady pipeline of companies moving from smaller opportunities into increasingly complex work, making it important to consider how those companies gain the experience necessary to take that next step.
Past performance can be an important consideration in federal contracting because agencies often want contractors to demonstrate that they have successfully performed similar work before awarding them larger or more complex contracts. For newer businesses, however, that requirement can create a difficult cycle. A company needs contracts to build past performance, but it can struggle to win those contracts because it does not yet have enough past performance. Without opportunities to gain experience, the company can have difficulty moving into larger and more competitive areas of the federal market.
That means raising SBA’s size standards may need to be viewed as part of a broader conversation about how federal agencies help businesses grow. The goal would not necessarily be to keep companies classified as small indefinitely. Instead, higher size standards could provide successful businesses with additional time to prepare for the next stage of their development. That time could be used to hire employees, strengthen management teams, invest in technology and infrastructure, expand capabilities, build a more diverse customer base and strengthen past performance.
There is a legitimate reason for SBA to examine the issue. A company that has outgrown the small-business category is not automatically equipped to compete with the largest federal contractors. Reaching the size threshold may mean the business is successful, but it does not mean the company has the same resources as a major government contractor. Large contractors can have substantial financial reserves, nationwide recruiting operations, extensive compliance teams, established relationships with government customers and long histories of managing major programs. A growing contractor may have many of the same capabilities, but on a much smaller scale.
Higher size standards could give those companies more time to close that gap and prepare for competition in the broader federal market. Instead of forcing a company to make an immediate transition from small-business opportunities to a marketplace dominated by much larger competitors, the policy could create a more gradual path toward full-and-open competition. For companies that are already investing in growth, that additional runway could help them make those investments without having to worry as much about crossing an arbitrary threshold too soon.
There are also reasonable concerns about raising the limits too much. If larger companies remain eligible for small-business programs, smaller companies could face more competition for contracts that are intended to support them. A business that is technically considered small under a higher threshold could still be significantly larger than many of the companies competing for the same opportunities. Policymakers therefore have to consider how any changes would affect businesses at different stages of development.
SBA faces the challenge of finding the right balance. The government needs programs that give genuinely small businesses a chance to compete, while also creating a realistic path for successful companies to grow into larger federal contractors. That transition is important for the overall health of the federal contracting industry because a strong marketplace needs companies at different stages of development.
Small businesses bring new ideas, specialized expertise and competition to the government marketplace. Larger businesses provide the workforce, infrastructure and resources needed to manage complex and high-value programs. The federal government benefits when companies can move successfully from one stage to the next rather than becoming stuck between the small-business market and the larger federal marketplace.
For growing contractors, the issue is not necessarily about avoiding growth. Many companies want to hire more people, pursue larger contracts, expand their capabilities and take on more responsibility. The concern is that growth can sometimes move a company into a competitive environment before it has developed all the resources necessary to succeed there. Higher size standards could give these businesses more time to build the capabilities they need before taking that step.
However, Frederick’s warning suggests that policymakers should look beyond size standards alone. If the government wants to develop a strong pipeline of federal contractors, it also needs to consider how newer businesses can gain the experience and past performance required to win increasingly larger opportunities. Giving established companies more room to grow will not solve the problem if newer companies cannot get the opportunities they need to build their businesses in the first place.
Ultimately, the strongest argument for higher size standards is not about keeping companies small. It is about giving successful businesses a realistic path to becoming larger federal contractors while making sure newer companies still have opportunities to enter the market and build the experience they need to grow. The challenge for SBA will be finding a policy that accomplishes both goals without creating new barriers for the businesses the small-business contracting system was designed to support.
