GAO Report Considers Options to Increase “Mid-Sized” Business Opportunities

Earlier this month, GAO produced an over 50-page report, presenting a discussion on options for increasing business opportunities for “mid-sized” businesses. It can be tough to go from being a small business to competing with all large businesses, so GAO took a look at these small-ish large businesses.

We know SmallGovCon readers are busy, so we’ll provide the CliffNotes version.

The Backdrop

Currently, there no statutes or regulations covering mid-sized businesses, so GAO created its own definition. “Mid-sized businesses” were deemed to be businesses with “revenue or employees up to five times above the small business size standard.” Specifically, the study focused on mid-sized companies which had received small business set-aside contracts in the past, then outgrew their size standards.

Notably, GAO pointed out that the number of businesses which outgrew their size standard and continued to receive federal contracts was pretty small. In fact, only about 2.5% of businesses awarded only small business set-aside contracts in 2008 had become mid-sized by 2017. This is not terribly surprising, as small business set-aside recipients generally recognize the value of staying small under the current procurement system.

In any case, GAO reviewed a number of different options for supporting mid-sized businesses, relying on industry literature and interviews with SBA officials and “11 stakeholders—trade association representatives, researchers, and small business directors at three agencies with large obligations for small business contracts.”

The Options

GAO isolated four basic categories of “options” to support mid-sized businesses:

  1. Establishing a Set-Aside for Mid-Sized Businesses.

While some stakeholders found this option to be a sure-fire way to increase opportunities for mid-sized business, it was almost universally panned. Why? Its critics feared that another set-aside option would be a threat to small businesses, re-categorizing work that would otherwise be set aside for them. What’s more, it would create an additional burden on agencies, “including additional time and cost to define and implement the new set-aside and additional tracking and reporting costs.” If implemented, agencies would also be required to meet new set-aside goals and contracting officers would need to perform additional market research.

2. Modifying Rules for Multiple Award Contracts.

This option proposes “that small businesses on the restricted track of a multiple-award contract that outgrow the contract’s small business size standard be moved to the unrestricted track” or be “on-ramped.” GAO noted that some multiple-award contracts, like GSA’s OASIS, already allow for this, while others, like DHS’s EAGLE II, do not. The response to this option was predominately positive, as stakeholders found that “this option could increase contracting opportunities for growing and mid-sized businesses.” In addition, agencies would also likely “benefit from being able to retain contractors even if the contractors outgrew their size standard.” Still, some were concerned about additional administrative burdens, stating that “it might take longer for an agency to evaluate proposals for unrestricted task order competitions if the pool of competitors grew.”

3. Changing Past Performance Requirements.

GAO considered a number of permutations of this option. First, it looked at lowering, or even eliminating, quantitative requirements for past performance. Most found that this would increase opportunities for both mid-sized and small businesses and potentially benefit agencies by creating a larger pool of eligible offerors. On the flip side, stakeholders noted that the larger pool might increase the evaluation period. Even more problematic, several stakeholders mentioned that “lowering or eliminating quantitative requirements for past performance would increase the risk to the agency of awarding contracts to firms that cannot successfully complete the project.”

Second, GAO considered requiring agencies to consider past performance of each company in team arrangements, rather than limiting consideration to past performance of the team as a whole. While stakeholders found that this would increase options for mid-sized businesses and potential teammates, they found this permutation risky because the Government is not a party to teaming agreements and cannot play a role in enforcing them.

Finally, GAO considered requiring agencies to consider subcontracting past performance (work the prime had performed as a subcontractor or experience provided by proposed subcontractors). For the most part, stakeholders agreed that this option could be beneficial for mid-sized and small businesses, but that it could also create more work and enhance performance risks for agencies.

4. Modifying SBA Size Standards.

As with Option 3, Option 4 contained several permutations, including changing the calculation method for revenue-based size standards. Rather than considering all of the 5 preceding years to calculate size, this option would permit service businesses to use the 3 lowest income years to determine size. Stakeholders noted that this could “prevent an outlier revenue year from causing a small business to prematurely outgrow its size standard” and help ease a business’s transition into being mid-sized.

But SBA officials chimed in that it “could be perceived as unfair because it would not benefit businesses in industries with employee-based size standards.” GAO also considered the impact of allowing businesses to subtract research and development expenses from their annual receipts and raising revenue-based size standards, but most stockholders explained that either version of Option 4 would have limited impact in the long run.

So What?

At the end of the day, GAO’s report does not conclude which option would be best or recommend any significant changes. Instead, it opened the door to further discussions about mid-sized businesses. Here at SmallGovCon, we’ll keep you updated on the mid-sized business conversation and let you know of any big changes in the works.

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