By Kristen George

A controversial new recertification policy that will be enacted by the federal Small Business Administration in June has made waves with a grassroots organization that claims the new policy is keeping billions of dollars from small businesses around the country.

Under the recertification rule, companies with small business contracts will be required to recertify their size status on all long-term contracts when a contract option is exercised, when a small business is purchased by or merged with another business and at the end of the first five years of a contract. The rule stems from recent studies that showed a significant number of large businesses were being counted by federal agencies toward their quota of small business contracts.

The SBA defines a small business as “an independent business having fewer than 500 employees.”

The SBA says the discrepancies come from long-term small business contracts awarded to companies that later either outgrew the qualifications to be considered a small business or merged with or were acquired by a larger company.

This causes a problem because historically, size status marking whether a company is large or small has been determined at the time of the initial offer on the contract and is retained over the life of the contract. However, federal contracts issued today are often long-term, with some reaching 20 years. Under current regulations, federal agencies are allowed to continue counting these contracts toward their quota, but the SBA says the new recertification policy will now require agencies to report these contracts as large businesses at the time of the recertification.

“The new recertification policy is retroactive and applies to all long-term contracts,” said David Perry, communications director for the SBA Atlanta Regional Office. “That means if any of those events occur that trigger the requirement for recertification—when an option is exercised, or when a small business is purchased by or merged with another business, or at the end of the first five years of the contract—then the small business has to recertify itself as small right then and there, or concede it has become a large business.”

Because the policy is retroactive, businesses currently under contract may be required to recertify as soon as the law goes into effect. For example, if a contract dates back to July 2002, the five-year rule will trigger an immediate recertification.

A grassroots small business advocacy group called the American Small Business League is challenging the new policy, saying a five-year policy is too long and that large companies should have their contracts revoked immediately and future recertification should occur annually for all businesses under federal contract.

“Why are we talking about how much longer these Fortune 500 companies can stay in the SBA database? Why are they not being removed tomorrow?” said American Small Business League President Lloyd Chapman.

Chapman also took issue with the fact the SBA announced the new policy six months before it would take effect, causing what Chapman called a “flurry of contract awards and renewals among government agencies to prime companies” in order to avoid recertification until 2012.

Chapman also contends that many of the hundreds to thousands of large businesses currently under federal contracts as small businesses are actually there fraudulently.

“The degree that government contracts go to small business that are really just subsidiaries of large corporations is completely taking advantage of the federal small business mandate,” said Frank Knapp Jr., president of the S.C. Small Business Chamber of Commerce. “Going to an annual recertification would truly be the only way to protect the system. Yes, it would be a lot of work at the federal level, but we need to either be sure these contracts are going to small businesses or quite playing games and just get rid of the federal mandate all together.”

The SBA maintains that a five-year period is the most beneficial to everyone involved.

“The ASBL prefers annual versus five-year recertification,” Perry said, “but the comments we received from small businesses, members of Congress, federal contracting officers, and others when we proposed annual recertification a few years ago, were heavily against it for a variety of reasons.”