This summer, the U.S. Small Business Administration (SBA) proposed raising its current definitional size standard for architectural services for its federal jobs set-aside program from $4.5 million to $19 million. The new higher size-standard definition means a larger pool of architecture firms could soon be eligible to compete for federal contracts as small businesses. According to AIA estimates, over 91 percent of architectural firms already fall under the current $4.5 million net receipts standard. If raised to $19 million, over 97 percent of firms will qualify as small businesses.
“The set-aside program objective is to have 35 to 40 percent of the category’s participants benefiting, but even under the current threshold we have 91.7 percent of architect firms qualifying, so there is something wrong there,” says Paul Mendelsohn, AIA vice president of government and community relations.
The official comment period on the proposed new size definition ended June 15, and AIA continues to work with SBA officials on the proper methods to define who can compete as a small architectural business in the $700 billion federal contract marketplace. Extensive AIA member feedback suggests problems with both the current and proposed new small-business size standards. SBA has long struggled to find a numerical definition of small businesses on an industry-by-industry basis. Between 1980 and 2008, the agency proposed comprehensive revisions of its size standards five different times, yet none were ever fully implemented due to industry concerns.
SBA currently has 42 different size standards covering 1,114 different industries, with 31 of the current industry size standards based on average annual total receipts, eight on number of employees, and three on other metrics. With federal budget cutbacks soon delivering far fewer dollars to all programs, along with high governmental interest in streamlining processes, there is a renewed push to simplify metrics and ease administrative oversight by reducing both the number of industry categories and the number of size ranges.
SBA is now proposing eight receipt-based size standards (down from the current 31), placing architectural services into the new $19 million range—a 322 percent increase from its current $4.5 million range. Further complicating matters, the current category of architectural services would be combined into A/E services, placing both architectural and engineering firms in the same category definition. When proposing size standards, SBA looks at distribution of firms by size, average firm size, industry competition, and success in the government contracting marketplace. Architects and engineers do not share common metrics in each of these areas, which may make for an illogical grouping.
Walter J. Hainsfurther, FAIA, in his May 5 testimony before the U.S. House of Representatives Subcommittee on Economic Growth, Capital Access and Tax, noted that the average size of architectural firms is in fact getting smaller, not bigger.
“Billings at my company are down 80 percent from two years ago … and I’ve gone from a firm of 25 architects five years ago to five architects today,” testified Hainsfurther, president of Kurtz Associates Architects in Des Plaines, Ill. “The vast majority of architects practice in one- or two-person firms [and] in the recession, more small firms are created instead of consolidating; as more people lose jobs, they hang out their own shingles.”
While the higher size standard may allow federal agencies to more easily achieve their small-business contracting goals, businesses now defined as small under the current standard may obtain far fewer, if any, federal contracts, as this will put them in the same definitional category as much larger firms. With no date set for its decision, one thing is sure: If the SBA goal in a budget-limited environment is to truly help small businesses, raising the current $4.5 million size limit may have unintended consequences.