Contract process full of pitfalls for small firms

Valerie Lilley’s Navy coat contract was part of a government set-aside program aimed at growing small businesses. Since 1997, Congress has had a goal of awarding 23 percent of government contracts to small businesses.

But a study by a business credit card unit of American Express found that on average it takes a small business nearly two years of trying before it wins its first contract.

“There are systemic problems with the procurement process. The government has not made the kind of progress it really needs to in moving away from very detailed specifications for very common items,” said Robert Burton, a partner at Venable LLP, who formerly served as the top career federal procurement official at the Office of Federal Procurement Policy.

In his former role, Burton said, he saw 15-page documents listing specifications for making everything from toothbrushes to toilet paper.

Of Toluca Tailoring’s failure, which was partly related to not meeting precise stitching requirements, Burton said, “It’s a coat. It’s a coat. It’s not a weapons system. It’s a coat.”

Just as whales can eat smaller fish simply by sucking in the water around them, the mismatch between big government and a small business can make them “just disappear,” said Michelle Randall, principal of Enriching Leadership International, a global executive coaching and consulting firm.

“The amount of paperwork is substantial,” Randall said. “It could overwhelm a small business.” 

Pamela J. Beavers, the Small Business Administration’s director of government contracting for Area IV, said small businesses should have other contracts and orders in the pipeline, along with about 10 months’ worth of financing, before trying for a government contract.

Successful contractors spend an average of $86,000 a year in staff time pursuing contract opportunities, the American Express study found.

In this sputtering economy, the situation Toluca Tailoring found itself in wasn’t uncommon. Small businesses are more likely to count on winning a single big order after they run out of options, said Scott Testa, a professor of business administration at Cabrini College in Radnor, Pa. That’s why, he said, small businesses should carefully read a contract to account for any potential payment lags.

“Some of these decisions that may be important from the small business owner’s perspective may not be a priority for these huge government agencies,” Testa said.

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 — Oct 13, 2010 – Chicago Tribune-McClatchy-Tribune News Service  Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com.  Distributed by McClatchy-Tribune Information Services

On-line training offered for GSA Schedules program

Looking for help with the GSA Schedule process before the next class is available through the Georgia Tech Procurement Assistance Center (GTPAC)?

Now, GSA Schedules training is being offered by GSA on-line.  The webinar-format training will be offered in both Novemeber and December 2010.

GSA’s free webinars are designed to support small businesses interested in obtaining a GSA Multiple Award Schedules contract. You must pre-register for the GSA webinar.  

If you have questions regarding these webinars, please contact Christy Jackiewicz by email at christy.jackiewicz@gsa.gov or by telephone at (202) 219-0396.

SBA makes small businesses bigger (the easy way)

The enlarging of small business has begun.

On Wednesday, the Small Business Administration published a final rule revising upward the size standards that determine eligibility for S.B.A. programs in three broad sectors of the economy. And that is good news for nearly 18,000 businesses that until now have been unable to take a government-backed loan or to get assistance winning federal contracts. But it makes the term “small business” a little more ambiguous.

S.B.A. size standards vary by industry (as enumerated in the North American Industry Classification System). Generally, caps are set based either on number of employees or average annual receipts, a system that was put in place in 1984. Apart from occasional inflation adjustments and other tweaks, the standards have remained largely the same since then. The changes announced this week, for the retail, accommodation and food service, and “other services” sectors, are the first to result from what the agency calls the first “comprehensive review” of size standards in nearly 30 years.

For the most part, industry size standards now set at $7 million in average annual receipts will be doubled or more, in some cases increasing to $30 million or $35.5 million. But these are not nearly as drastic as the adjustment made for new car dealers. Initially, the S.B.A. proposed raising the maximum receipts to $30 million, from $29 million, or, alternatively, setting the maximum level of employees at 100. But after lobbying from the National Automobile Dealers Association, the S.B.A. adopted a standard that defines dealers with up to 200 employees as small.

According to the S.B.A., nearly a third of those 18,000 companies, scattered across 70 industries, soon to fall under the small-business rubric are new-car dealers. Figures from the Census Bureau indicate that 83 percent to 93 percent — and probably closer to 93 percent — of all new-car dealerships will now be considered small. Moreover, the largest of those now-small firms will have annual revenue of around $120 million.

An S.B.A. spokesman, Jonathan Swain, said senior agency officials were not immediately available to discuss whether, or why, auto dealers had been singled out by the new policy. However, since the Obama administration effectively nationalized much of the General Motors and Chrysler last year, it has used the S.B.A. to alleviate the suffering of the politically powerful car dealer industry, even as it simultaneously pushed G.M. and Chrysler to shutter many of their dealers.

In May 2009, the S.B.A. created an alternative size standard for the purposes of getting a government-backed loan, in effect through last month. The alternative — which replaced the average revenue or headcount threshold with a maximum net worth of up to $8.5 million, combined with a net income capped at $3 million — was not specifically aimed at auto dealers, administration officials said at the time. However, they pointed out that relaxing the rule would increase the share of all new car dealers eligible for an S.B.A-backed loaned from 25 to 50 percent. A few weeks later, the agency announced a new, also temporary, “floor plan financing” program specifically devised to allow hard-pressed vehicle dealers to use the agency’s general business loans to finance inventory.

Andy Koblenz, the dealer association’s vice president of legal and regulatory affairs, defended the new size standard. “The top line revenue is not relevant because of the nature of the products,” he said. “If you’re selling books, or you’re selling clothing or you’re selling cars, the businesses are comparably sized in terms of physical plant, sales staff and management structure.” According to the association, the average pretax profit margin for its members has hovered around 1.5 percent in recent years, among the lowest margins of any American industry that’s turning a profit (on average, a dealer with $120 million in revenue would earn a taxable income of $1.8 million).

The new size standards take effect on Nov. 5. Meanwhile, the recently enacted small-business jobs bill directed the S.B.A. to put into effect another, still more generous, temporary alternative size standard for S.B.A. loans to supersede the expiring standard put in place in May 2009. Under the new law, the cap on net worth was raised to $15 million and the limit on income bumped to $5 million. On Friday, the S.B.A. announced that it had enacted the new standard.

Political pressures inexorably push up small-business size definitions. That, at least, is the theory of Jonathan Bean, author of a history of the S.B.A. provocatively titled “Big Government and Affirmative Action.” As the name suggests, this is not exactly a work of scholarship; it’s a polemic offered by an ideologue staunchly opposed to any S.B.A.-style intervention in supposedly free markets. Nonetheless, the events of the last several weeks suggest Mr. Bean has a point.

The pressure comes not just from Congress. In fact, in each of the three sectors the S.B.A. analyzed in its own review, the agency found many industries where the data suggested actually reducing size standards. But in each instance, it declined to do so. “S.B.A. believes that lowering size standard for those industries would not be in the best interests of small businesses when the economy is in a deep recession,” the agency wrote when it proposed these rules in October 2009.

Nor, apparently, is it in their interests after the economy exits recession. “Further,” the agency continued, “S.B.A. does not anticipate that it will propose to lower size standards after the Recovery Act terminates on September 30, 2010. S.B.A. intends for the proposed size standards, if adopted, to remain in effect unless and until it receives information or data that suggests a change is needed.”

In other words, we are all small businesses now.

— by Robb Mandelbaum, New York Times – Oct. 9, 2010

GSA offers webinar on its mentor-protégé program

The Office of Small Business Utilization of the General Services Administration (GSA) is conducting a free one-hour webinar on Monday, Oct. 18, 2010 to explain the agency’s Mentor-Protégé Program.

The webinar provides both potential mentors and protégés with a general overview of GSA’s Mentor-Protégé Program as well as a review of the policies and procedures for participation.

You must REGISTER for this webinar in advance.   If you have questions regarding this webinar, please contact Anthony “Tony” Eiland by email at anthony.eiland@gsa.gov or by telephone at (202) 208-0257.

False Claims Act settlements serve as reminder on pricing

Recent settlements of allegations brought under the False Claims Act of defective pricing serve as reminder to companies doing business with the government to tighten up their procedures around pricing.

Cisco Systems and Westcon Group North America agreed to pay $48 million to settle claims they made misrepresentations to the General Services Administration and other federal agencies in violation of the False Claims Act.

The civil settlement announced by the Justice Department Sept. 7 resolves allegations that that Cisco and Westcon knowingly provided incomplete information to GSA contracting officers during negotiations related to Westcon’s contract with the GSA, resulting in defective pricing of Cisco products and submission of false claims to the government, according to the DOJ press release.

The settlement is part of a continued trend by DoJ to crack down on defective pricing by contractors. Federal contracts generally require companies to give the government the best price they give any customer. Failure to do so violates the False Claims Act. Under the Act, whistleblowers who report fraud against the government can become qui tam relators and collect a piece of any recovery, which can sometimes be worth millions of dollars.

In announcing the settlement, Tony West, Assistant Attorney General for the DoJ’s Civil Division, warned that, “When contractors provide incomplete and untruthful information to the government, we will take action to restore the integrity of the procurement process and protect taxpayer dollars.”

Likewise, GSA Inspector General Brian Miller said the agency’s auditors and special agents “keep vigilant watch to ensure contractors stay honest.”

Joseph Warin, a partner in the law firm Gibson, Dunn & Crutcher, says the type of settlement announced by Cisco and Westcon ”is not new, but it certainly is consistent” with past FCA enforcement activity.

In August, Hewlett-Packard agreed to pay DoJ $55 million to settle claims it defrauded the GSA and other federal agencies. That settlement resolved FCA allegations that HP knowingly paid kickbacks, or “influencer fees,” to systems integrator companies in return for recommendations that federal agencies purchase its products, and claims that HP’s 2002 contract with the GSA was defectively priced because HP provided incomplete information to GSA contracting officers during contract negotiations. EMC Corp. agreed to pay $87.5 million to settle similar claims in May.

Warin says it’s not hard for companies with large sales forces selling various products and services around the world to inadvertently fly afoul of the GSA regulations.

“As the sophistication and diversity of the products, add-ons and services become more varied, it becomes harder for companies to provide an apples-to-apples pricing comparison,” he says. “It’s a reminder that corporations with huge sales forces located in all four corners of the globe need to have an internal controls system that centralizes pricing and doesn’t allow for exceptions and variations.”

As a part of the Cisco Westcon settlement, the government agreed to dismiss a whistleblower lawsuit filed in 2004 in an Arkansas District Court, United States ex rel. Rille. v. Cisco Systems, Inc.

— Sept. 9, 2010 – ComplianceWeek.com