We’ve talked extensively about the benefits of being a small business in government contracting. Between the set-aside contracts and the preferential treatment during proposal evaluations, small businesses can gain many competitive advantages. So many, in fact, that borderline small-medium-sized businesses (SMBs) – and even some large businesses – may attempt to veil their true size in order to obtain or maintain a small business certification. Alternatively, some small businesses may enter into risky business agreements with larger businesses that violate the terms of set-aside contracts, such as what occurred in this.
Then there are situations in which a business qualifies as a small business in some jurisdictions and assumes that their status applies broadly across all government subsectors. The latter is typically an honest mistake that arises at the state and local levels for two reasons:
The federal government typically follows the Small Business Association’s (SBA) set-aside program guidelines, but even those pose some opportunities for missteps – or fraud – by small and large businesses alike. For example, thethat “Two or more small businesses may pool their efforts by forming a joint venture to compete for a contract award. A joint venture of multiple small businesses still qualifies for small business set-aside contracts if its documentation meets SBA requirements.”
What a small business cannot do is tap into a larger business to help them fulfill their contractual obligations as a small business. The federal government clearlyin its Federal Acquisition Regulations (FAR) that “for small business set-asides other than for construction or services…” any small business “proposing to furnish a product that it did not itself manufacture must furnish the product of a small business manufacturer unless the SBA has granted either a waiver or exception to the nonmanufacturer rule (see 19.102(f)). In industries where the SBA finds that there are no small business manufacturers, it may issue a waiver to the nonmanufacturer rule (see 19.102(f)(4) and (5)).”
In other words, your small business must leverage other small businesses if awarded a set-aside contract. Of course, there are some exceptions. Beyond the waiver scenarios described in, the SBA indicates that small businesses can form a joint venture with a large business – and compete with that large business for small business set-aside contracts – if the two businesses have a mentor-protege relationship through the SBA’s All Small Mentor-Protege program. (And one of the businesses as a small business, which as we just discussed, may vary from agency to agency. The SBA “small business” definition is just a guideline, but not the end-all-be-all determinant for set-asides.)
A word of caution: Although the SBA mentor-protégé program technically allows a large business to participate in some solicitations reserved for small businesses, what you cannot do is scheme with a small business to exploit the set-aside program. The consequences could be dire, as Arena Americas and Military Training Solutions LLC realized in this. As GovExec.com reports, “Arena Americas [a large international business] worked with Military Training Solutions LLC to obtain small business defense contracts that were represented as being performed by Military Training Solutions, but were actually performed by Arena Americas.” As a result, Arena Americas had to forfeit $7.8 million (and the contract). The investigation also revealed that the CEO of small business Military Training Solutions had received unlawful kickbacks in a similar scheme, which led him to enter a felony guilty plea.
As evidenced in this situation and many other similar cases, the government has a checks and balances system in place to minimize fraud and abuse. Agencies will work with the SBA and other organizations to investigate and verify your small business status, as well as the status of your suppliers and partners. Don’t risk losing your “disadvantaged” advantage due to an honest oversight or assumption about your eligibility as a small business – or by “stretching the truth” about your size or financial status. As your business grows (which is the ultimate goal, right?), you may lose some of the competitive advantages you had early on and see increased competition on full and open solicitations. That’s okay. By this point, you’ll have a solid performance record, a reputation for value and strong relationships to increase your candidacy. There is no need to cheat the system. Plus, there are still other disadvantaged business entity (DBE) opportunities set aside for women, minority, veteran and locally-owned businesses – especially at the state and local government levels.
: Secure a Certified “Disadvantaged” Advantage
: Can Your Small Business Really Compete with “Big Businesses” for Government Business? Absolutely.
: The Definition of Small Business is Changing for Some. and