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What Is Small?

In material handling, distributors work hard to gain and retain customer accounts. To do so, they must outsmart and out-service a host of other distributors who are vying for the same accounts. But what would happen if the number of distributors vying for those accounts suddenly doubled? Distributors bidding on government contracts could be facing that very situation in the near feature, as the U.S. Small Business Administration (SBA) has begun to redefine what constitutes a “small” business.

“The biggest customer in the world is the United States federal government,” Mid Middleton, president of Carolina Material Handling (Greensboro, NC) says of the entity that buys goods and service in excess of $425 billion per year. Among those purchases are training, service and goods that MHEDA members provide. To ensure a level playing field when bidding for contracts, the government offers many procurement opportunities exclusively to small businesses. Federal agencies are required by law to set contracting goals, with at least 23 percent of buying being targeted at small companies. The problem is that, to many businesspeople, what constitutes “small” seems to be a moving target.

In examination of size standards, SBA is revising the North American Industry Classification System (NAICS) codes, which ascribe a maximum limit, either by number of employees or average annual receipts, for qualifying small businesses. (See the SBA’s Table of Small Business Size Standards). The SBA review encompasses every private sector in the U.S., calculated based on data from the 2007 County Business Patterns and the 2007 Economic Census. The most recent proposed adjustments, which would affect the professional, technical and scientific services sectors, saw many requirements double—or more.

“One of the great mysteries of life is what constitutes a small business,” says Richard Sinclair, president and CEO of Jefferds Corporation (St. Albans, WV) who does GSA work in the state of Virginia. “It’s like the tide. It’s constantly moving and changing.” Sinclair has done business with Uncle Sam for many years and has found himself in a unique position. “From a federal perspective, I don’t qualify as a small business. However, under the provisions of the Virginia purchasing authority, on a state level, I am small. It’s almost unexplainable.”

With government contracts being a lucrative and ultra-competitive area of business, a review of size standards could send shock waves through the material handling industry. “There is no question that small businesses have an advantage,” Sinclair says. “If a project is set aside for small businesses and you don’t qualify, you’re out of the hunt. That’s not to say that if you do qualify you’re going to get it, but you’ll have a chance to get up to bat. If I get up to bat, I might get a hit. If I never get up to bat, I’ll never get a hit. If I were reclassified as a small business by federal standards, that would be a boon for our business.”

Middleton, however, disagrees that a reclassification will make a significant difference. “In addition to being a small business, we’re also a Service Disabled Veteran Owned company,” he says. “Theoretically that should put us at an advantage. But it is certainly not the end-all. The government, as with any customer, is about relationships. What is your track record? Are you going to do what you say you’re going to do? It’s about what you have done and what you can provide far more than how big or small you are.” He adds, “Even though a certain percentage is set aside for small businesses, the customer is still going to price shop. They aren’t going to pay an extra five percent just to check off that box that says small business.”

Where the SBA will draw the line for what is considered small remains to be seen. What will the SBA reexamination mean for MHEDA distributors? Share your thoughts in the comments section below.

To learn more about working with the U.S. government, read “Doing Business With Uncle Sam.”

Material Handling Equipment Distributors Association

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