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Why the SBA's Size Standard Rules Are Getting a Second Look

The federal spending bill once again raises the issue of whether the Small Business Administration's sizing criteria truly represent small businesses.
December 16, 2014

The giant federal spending bill passed by Congress over the weekend has implications for certain types of small-business owners—from Las Vegas tour operators to farmers and ranchers.

One particularly interesting measure passed in the bill, however, involves how the Small Business Administration’s size standard rules affect small companies’ ability to sell their goods or services to the federal government. 

The bill requires the Defense Logistics Agency (DLA)—which provides supplies for American military around the world—to reconsider how it defines “small business” when it buys footwear. The order stems from the concerns of a company called Wolverine World Wide.

Though Wolverine employs more than 8,000 people worldwide, it has owns a Michigan-based unit called Bates Footwear that has been classified as a small business and sold many boots to the DLA over the years.

In October 2012, the SBA updated its size standard rules and combined several footwear-related industry classifications into one. Bates’ management soon discovered that the new rules meant that the company was no longer able to win “meaningful” government contracts, according to a letter Bates’ president Onder Ors sent the Office of Information and Regulatory Affairs in April. 

“Lacking the ability to compete, Bates will be forced to lay off all of our workers and close our manufacturing plant in Big Rapids,” Ors wrote.

The issue raises some interesting questions about SBA size standards and shows how a change in size standard rules and industry classifications can have dramatic effects on certain businesses. 

Earlier this year, the SBA updated its size standard criteria and, in the process, allowed 8,500 more U.S. businesses—some with more than 1,000 employees—to qualify as “small businesses.” The move upset many small-business advocates, who feel the SBA is hurting legitimate small businesses by allowing mid-sized companies to compete for contracts reserved for small businesses.

Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp., wrote in The Wall Street Journal that the SBA should stick with helping small businesses—not trying to help larger businesses as well.

“With over 28 million small businesses—23 million of which are sole proprietorships—we need the Small Business Administration to focus on truly small businesses, which are the backbone of the U.S. economy,” Stibel writes. “They employ half of the private workforce and have created the lion's share of post-recession jobs.”

Read more small-business news.

Photo: Getty Images