It's a Small World

Barry Shanoff

May 1, 2005

3 Min Read
It's a Small World

IS YOUR WASTE MANAGEMENT company a “small” business? If so, then the biggest consumer on the planet may be interested in buying what you have to sell.

No other purchaser in the world buys more goods and services than the U.S. government. Military and civilian installations spend a total of about $200 billion a year on items ranging from military hardware to solid waste collection.

By law, federal agencies are required to establish contracting goals of making nearly 25 percent of their purchases from small businesses. However, despite the obligation to reach out and consider small companies for procurement opportunities, it is up to business owners to match their products and services to the buying needs of the federal government.

The federal Small Business Act established the Washington-based U.S. Small Business Administration (SBA) to protect the interests of small businesses and to help ensure that a fair share of government contracts are placed with them.

The law defines a small business as “one that is independently owned and operated, and which is not dominant in its field of operation.” The law also says that the definitions of “small” will vary from industry to industry. The SBA uses the North American Industry Classification System (NAICS) to identify industries.

The SBA's standards are pegged to employee headcount or annual revenue. With some exceptions, all federal agencies use those standards, and many state and local governments adopt the definitions. The federal size standards can be found in the Code of Federal Regulations at 13 C.F.R. § 121.201 and at Eligibility goes beyond procurement activities, and affects federal loan programs, technical assistance and disaster relief.

A company that collects nonhazardous solid waste (NAICS Code 562111) qualifies as a small business if it takes in up to $10.5 million in revenue a year. A firm that provides engineering services (NAICS 541330) is a small one if it makes no more than $4 million in annual revenue. However, if the company's principal activity is environmental consulting (NAICS 541620), the limit jumps to $6 million. If the firm has an affiliated testing lab (NAICS 541380), the operation can bring in up to $10 million in annual revenue and still be considered a small business. In the meantime, a company that manufactures vehicle transmission or power train parts (NAICS 336350) is allowed up to 750 workers with unlimited revenue.

With such a huge amount of federal spending dollars available to qualifying businesses, some company owners and trade groups, concerned that the small business standards are too generous, are asking the SBA to reconsider what “small” means. “In America, 500 employees is not a small business in most industries,” Lloyd Chapman, president of the American Small Business League, told The Wall Street Journal, referring to the typical employee limit for manufacturing companies. Chapman's organization, which is based in Petaluma, Calif., is seeking a return to the 100-worker standard that prevailed some 20 years ago.

But changing the standards is easier said than done. About a year ago, when the SBA floated a proposal to shrink the number of size standards from 37 to 10, the resulting firestorm of criticism — from affected business owners and members of Congress — forced the agency to rethink the idea. For starters, some 34,000 small businesses would have been eliminated from the program.

Undaunted, the SBA plans to hold public hearings throughout the country this year.

Barry Shanoff
Legal Editor
Rockville, Md.

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