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Managing a Business

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Use for Government Procurement

Is your business ready to compete for government contracts? Before you can begin government procurement activities, the size of your business must be evaluated through a set of standards from a contracting officer.

A size standard is usually stated in number of employees or average annual receipts and represents the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA and federal contracting programs. 

Designating the Size Standard

For federal contracts, the contracting officer designates the size standard of the procurement by selecting the size standard in effect on the date the solicitation is issued. The basis for designation is the North American Industry Classification System (NAICS) that best describes the goods or services that are going to be procured.

When more than one NAICS is involved in a contract, consideration is given to the function of the goods and services being purchased and the relative value and importance of each.

The SBA has established a Table of Small Business Size Standards, which is matched to the industries classified in the NAICS for guidance.

Determining the Size is a Business Concern

To bid on a federal contract, a concern must self-certify that it is a small business under the appropriate size standard in the solicitation. The size of the concern at the time of self-certification is what the SBA considers to prevail for the contract. There are two exceptions to this rule:

  • A business concern is an applicant for a Certificate of Competency (COC) relating to an unrestricted procurement. The size standard will then be determined as the date of the concern's application for the COC.

  • For compliance with the non-manufacturer rule, the size standard is determined as of the date of the best and final offer.

In the 8(a) business development and HUBZone programs, the concern must meet the size standard for its primary industry to be admitted to the program. Then it must meet the size standard for the NAICS industry assigned to each individual contract.

Procurements with Different Size Standards

There are some cases where a procurement calls for two more items with different size standards. The offeror is either required to bid on all items or not.

  • If the offeror must bid on all end items, it may qualify as a small business if it meets the common size standard for those items accounting for the greatest percentage of total contract value.

  • If the offeror is not required to bid on all items, it may bid only on items for which it meets the size standard. To be awarded a government small business set-aside or 8(a) contract, the concern must perform at least a given percentage of the contract. This provision limits the amount of subcontracting a concern may enter into with other firms when performing these types of contracts. The provisions are as follows:

    • Construction: For general and heavy construction, at least 15 percent of the cost of the contract, not including the cost of materials, must be performed by the prime contractor with its own employees. For special trade construction, such as plumbing, electrical or tile work, this requirement is 25 percent.

    • Manufacturing: At least 50 percent of the cost of manufacturing, not including the cost of materials, must be done by the prime contractor.

    • Services: At least 50 percent of the contract cost for personnel must be performed by the prime contractor’s own employees.

For more information, see Prime Contractor Performance Requirements (13 CFR Part 125.6).

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