Small Businesses Made it onto Santa’s Nice List

For some, the holiday season has arrived early this year. Many small companies, as well as companies that have graduated from small business (SB) to large within the past two years, may have heard the sound of reindeer on their roofs on December 17, 2018. That is when President Trump signed the Small Business Runway Extension Act (H.R. 6330) into law. This Bill changes the Small Business Act by extending the period of time used to determine a company’s size based on its average annual receipts. The Small Business Act previously required a company’s size standard to be determined based on its average annual receipts from the previous three years. This Bill amends the Small Business Act to extend this period to five years.

At first glance, it would seem that only “Old Man Potter” in Bedford Falls would be appalled. The new Bill will certainly add a lot of holiday cheer for many SBs. Translate “cheer” as meaning stable revenue and job security for an additional two years as an SB. That is, of course, for SBs whose primary North American Industry Classification System (NAICS) codes are based on revenue. Oddly, the Bill does not pertain to companies whose primary NAICS code size standard is based on their number of employees. That is unfortunate since fluctuations in the number of employees is no different than that of annual revenue. They feel the pain of transitioning from SB to large, as well.

More Money, More Problems

Companies making the transition from SB to large face big challenges. Sometimes, they feel like an endangered species, regardless of whether their size standard is determined by revenue or number of employees. Often, much of their growth and success has been obtained through contracts competed exclusively among SBs. Once they graduate, those contracts almost always remain SB set-asides, and they are no longer eligible to bid them. This is a difficult adjustment that frequently results in layoffs and a mad scramble to replace those contracts with new work competing in an unrestricted environment. Imagine going from a 14.3M SB to a $17M large business that must now go head to head with multi-billion-dollar companies. This is often what happens, and it can be scary. This Bill give companies more time to make preparations to face such challenges.

However, this Bill, though a blessing for many, is certain to wreak havoc in proposal-land during this holiday season and for a while to come. This Bill has been signed, it’s law, yet it has no guidance on how to implement it.  Think about this sticky situation: there are hypothetically SB contract re-competes currently in the active RFP phase.  In what could be a significant number of those cases, the incumbent, technically a ‘large business’ prior to this Bill being signed, maybe subcontracting to another eligible SB. Suddenly, the incumbent is an eligible bidder. It’s safe to bet that they are scrambling to see if they can bid it. They will be taking a hard look at the Teaming Agreement (TA) that they signed with their prime to see if they have any way out of it. While they drag in their legal team to consider their options, they have most likely put their proposal team on red alert. This could be a situation in which the solicitation has been out on the street for two or three weeks and very little time is left to generate a proposal for it. Instead of spending Christmas with their families, these proposal teams will be desperately trying to make up for lost time.

The turbulence will not be limited to just solicitations that are currently in the proposal stage. It will also have an effect on many upcoming opportunities in which incumbent prime contractors, now large businesses, have signed TAs to subcontract to other SBs. Some situations will get resolved smoothly, but others will end up in strained relationships. Some may also end up in court over contested TAs.

We’re Calling this a Win

This is not a finger pointing session. This Bill, and perhaps other measures are needed to ease the transition from SB to large. The majority of companies affected by The Small Business Runway Act of 2018 will benefit from it.   In the meantime, there will be chaos. Not only amongst contractors, but this is sure to be a migraine for Contracting Officers and Specialists that will need to evaluate how this affects their solicitations. Even if you are not one of the SBs whose status is changed by this Bill, you may see it affect your competitive landscape. The incumbent that was ineligible to bid, may now be eligible.  This is a Bill that could really shake things up.