Small Business Insider
by Karen Kerrigan-
You may have missed this bill signing. The “Small Business Runway Extension Act of 2018,” (H.R. 6630) was signed by President Trump along with a small pile of other bills on December 17.
H.R. 6630 is a significant piece of legislation for small business government contractors, as it makes size-standard reporting changes that will help small firms become more viable competitors once they “graduate” from their small business status.
“The bill will benefit small businesses in many ways, especially in developing their infrastructure and management to allow them to better compete in a full and open competition,” said Brian Newell, Executive Vice President of C2 Solutions Group, a small government contractor. “Moreover, it allows small business contractors to handle spikes in revenue that could disqualify them from competing for small business contracts in the restrictive three year period,” he added.
As noted in a media release by the bill’s chief sponsor Rep. Steve Knight (R-CA) when he introduced H.R. 6330 this past summer:
“Under existing law, the Small Business Administration (SBA) requires that businesses report their average gross receipts over the previous three years in order to be categorized as a ‘small’ business to receive certain SBA resources and assistance. This three year requirement has caused some fledgling ‘mid-tier’ companies to be ejected from the small business category prematurely due to an uncharacteristically successful year or scaled success that has not yet prepared them to compete with larger companies outside the small business category.”
H.R. 6330 modifies the SBA reporting requirements, as businesses will now report their average earnings over the last five years, rather than three. This change will provide “more certainty to small businesses as they ramp up their operations and grow over time. It will also help ensure that businesses are more prepared for the stronger competition should they choose to expand past the small business category,” according to Rep. Knight.
In a floor statement by House Small Business Committee Ranking Member Nydia Velazquez (D-NY) in support of the bill, she said that changes will address “the pressure placed on those businesses not able to compete against large entities from being prematurely placed outside their size standard by providing a more inclusive review of 5 years of their gross receipts.”
According to several SBE Council members whose firms are federal government contractors:
• The five-year period better enables small business contractors to build capacity, and develop the internal systems and management needed to compete with large contractors.
• The extension gives small businesses more time to develop the partnerships that are necessary to compete for full and open opportunities.
• In addition, access to capital is enhanced, as government contracts can be key to small business financing, as banks lend to government contract (GOVCON) companies based on receivables and contract backlog.
As explained by a Miles & Stockbridge blog post on the importance of the legislation:
“The objective of the legislation is to chip away at the federal marketplace’s ‘mid-size no man’s land problem.’ Contractors that outgrow their size status and lose access to set-aside procurements tend to experience difficulties succeeding in the environment of full and open competition. Often, graduated smalls are forced to sell, fall back to small, or go out of business. As a result, there are thousands of successful small contractors, and a significant number of firms with more than $500 million in revenue, but relatively few success stories in between, thus creating the ‘mid-size no man’s land.’”
H.R. 6630 was introduced by Rep. Knight in early July, which passed the House by voice vote on September 25, 2018. It was introduced by Senator Ben Cardin (D-MD) as S. 3562 on October 9, 2018. The Senate Committee on Small Business & Entrepreneurship’s report on the legislation (which advanced by unanimous consent) noted the rationale behind reforming the small business size standards:
“Allowing a longer transition to the open marketplace for advanced small and mid-size businesses would protect SBA’s initial investment in these small companies, promote competition in the federal marketplace, and preserve jobs…The Committee believes that it is important to give advanced small and mid-size businesses the tools they need to succeed and grow in the federal marketplace once they graduate from the small business size standards.”
The changes made by the legislation will take effect in the near future, once a rule is promulgated by the SBA.