U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

66–748 2011

PROFESSIONAL SERVICES: PROPOSED CHANGES 

TO THE SMALL BUSINESS SIZE STANDARDS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, CAPITAL 

ACCESS AND TAX 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MAY 5, 2011 

Small Business Committee Document Number 112–012 

Available via the GPO Website: http://www.fdsys.gov 


rfrederick on DSKD9S0YB1PROD with HEARINGcongress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

CHUCK FLEISCHMANN, Tennessee 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 


rfrederick on DSKD9S0YB1PROD with HEARING
(III) 

C O N T E N T S 

Page 

OPENING STATEMENTS 

Hon. Joe Walsh ........................................................................................................ 1 

Hon. Kurt Schrader ................................................................................................. 3 

WITNESSES 

Mr. Walter J. Hainsfurther, FAIA, President, Kurtz Associates Architects, 

Des Plaines, IL ..................................................................................................... 5 

Mr. John Woods, Woods Peacock Engineering Consultants, Alexandria, Virginia ....................................................................................................................... 13

Mr. Roger Jordan, Vice President, Professional Services Council, Arlington, 

Virginia ................................................................................................................. 25 

Mr. Odysseus Lanier, Partner, McConnell Jones Lanier & Murphy LLP, 

Houston, TX .......................................................................................................... 35 

APPENDIX 

Question for the Record: 

Hon. Yvette Clarke ........................................................................................... 55 

Responses for the Record: 

Mr. Walter J. Hainsfurther, FAIA, President, Kurtz Associates Architects, Des Plaines, IL .................................................................................... 61 

Mr. John Woods, Woods Peacock Engineering Consultants, Alexandria, 

Virginia .......................................................................................................... 56 

Mr. Roger Jordan, Vice President, Professional Services Council, Arlington, Virginia .................................................................................................. 59 

Mr. Odysseus Lanier, Partner, McConnell Jones Lanier & Murphy LLP, 

Houston, TX ................................................................................................... 60 

Statements for the Record: 

American Institute of CPAs Firm Segment Revenues Letter ....................... 44 

American Society of Landscape Architects ..................................................... 63 

Additional Materials for the Record: 

Chairman Walsh letter to Dr. Khem R. Sharma, Chief of the Size Standards Division of the U.S. Small Business Administration ......................... 67 


rfrederick on DSKD9S0YB1PROD with HEARING

rfrederick on DSKD9S0YB1PROD with HEARING
(1) 

HEARING ON PROFESSIONAL SERVICES: PROPOSED CHANGES TO THE SMALL BUSINESS 

SIZE STANDARDS 

THURSDAY, MAY 5, 2011 

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

SUBCOMMITTEE ON ECONOMIC GROWTH, 

CAPITAL ACCESS AND TAX, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Joe Walsh [chairman 

of the Subcommittee]. 

Present: Representatives Walsh, Schrader, Clarke, Chu, Cicilline, 

Mulvaney. 

Chairman WALSH. Okay. Good morning, everyone. Thank you for 

joining us. The hearing will now come to order. Welcome. 

The issue before the Subcommittee this morning lies at the core 

of small business issues. Who exactly is a small business? The answer determines whether a company is eligible for capital or entrepreneurial assistance from the SBA and whether the company can 

compete as a small business in the $500 billion government contracts market. SBA is trying to take an objective and analytical approach to this question and is revising all of its size standards over 

the next five years. 

Today we are looking at the size standards SBA is proposing for 

the scientific, technical, and professional services industries. These 

include the legal services, accounting, and tax preparation services; 

architectural and engineering services; computer systems; related 

services; management services; and advertising today. There is a 

joke that if you ask any business, they will tell you that they are 

definitely small but that their next largest competitor is clearly 

large. The difference between being small and large in the government contracting market has very real consequences. 

In 2010, over $150 billion in federal prime contracts were awarded in the professional services industries, over a quarter of all federal contracts. Over 32 billion of these dollars went to small businesses. That is nearly one-third of the $109 billion in prime contracts awarded to small businesses that year. 

Clearly, determining who a small business is in these industries 

is very important. SBA’s proposed rule would increase the number 

of small businesses in this category by 9,450 firms, which represents 1.2 percent of total firms in the affected industries. While 

this may seem like a small number in some industries, such as arVerDate Mar 15 2010 01:56 Jun 15, 2011 Jkt 066748 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\A748.XXX A748

rfrederick on DSKD9S0YB1PROD with HEARING
2 

chitecture, over 98 percent of businesses would qualify as small. Indeed, some small businesses would see their size standard increase 

by 400 percent. That is massive growth. 

It is my understanding that some of our witnesses today are 

going to talk about what that will mean to their industry. In contrast, firms in the computer systems design industries are only seeing an increase of two percent, even though those industries have 

seen major changes in the past few years. I am looking forward to 

our witnesses’ comments on these issues as well. 

Another topic I hope our witnesses will address is whether the 

SBA should proceed with its proposal to reduce the number of size 

standards. Currently, SBA has 41 size standards based on receipts, 

number of employees or other industry-specific factors. Thirty of 

the current standards, including the standards we are discussing 

today, are receipt-based. When the SBA proposes a size standard, 

it looks at industry factors, such as average firm size, start-up 

costs, entry barriers, industry competition, distribution of firms by 

size, and success in the government contracting marketplace. The 

resulting number then would become one of its size standards. 

SBA is now proposing that there only be eight receipt-based 

standards and that each industry be put in the closest appropriate 

standard. These new standards would range from $5 million up to 

$35.5 million. Since the old standards started at $755,000 and 

went to 35.5 million, I am curious as to whether the new standards 

really fit all of the industries as well as the old size standards did. 

We seem to have cut out the truly small size standards. Will limiting the number of size standards simplify the size standard process or will it unduly constrain SBA and keep them from developing 

industry-specific size standards? If moving to a set number of size 

standards is a good idea, are these the appropriate standards? 

Likewise, SBA is proposing grouping related industries into common size standards. 

I know that two of our witnesses today, being architects, would 

now be sharing a size standard along with seven other industries. 

Does this make your life simpler? Presumably, smaller businesses 

are less likely to participate in more than one industry so such a 

proposal might favor larger businesses. However, given that the industries are so closely related, removing the confusion as to which 

code is appropriate may assist small businesses attempting to identify federal contracting opportunities. Additionally, a single industry standard would not allow contracting officers to choose a code 

in order to include or exclude certain companies. So this would reduce the number of protests filed over the incorrect NAICS code 

being used. 

Finally, I want to hear how changes are being managed in the 

size standard program. I know that SBA is required by law to review all of its size standards in the next five years, but I do not 

want to see changes rushed at the expense of small businesses. I 

understand that some of the witnesses here today believe they need 

more time to study the effects of this proposed rule and I would 

like to learn more about that. 

I look forward to hearing from our witnesses today. I am especially pleased to welcome another Illinoisan, Walter Hainsfurther 


rfrederick on DSKD9S0YB1PROD with HEARING
3 

of Kurtz Associates Architects, who is testifying on behalf of the 

American Institute of Architects. 

I also want to welcome John Woods of Woods Peacock Engineering Consultants, testifying on behalf of the American Council of 

Engineering Companies. And Roger Jordan, vice president, the Professional Services Council. I am certain you will help us all have 

a better understanding of these issues. 

I now would like to recognize Ranking Member Schrader for his 

opening statement. 

Mr. SCHRADER. Thank you, Mr. Chairman. I appreciate it. 

Comprising the vast majority of employer firms and creating twothirds of new jobs, small businesses are critical to our United 

States economy. Recognizing the importance of small firms’ growth 

and job creation, Congress has created a lot of programs—federal 

programs, set-asides, tax preferences, and SBA loan programs—to 

help these small businesses succeed. However, as a result of that 

it has led to a very heated debate over what actually constitutes 

a small business. What is the appropriate size as the chair indicated? 

The federal benefits at stake are substantial. Last year, small business firms accessed over $15 billion in capital through the 

SBA’s loan programs. Many entrepreneurs used these loan proceeds to keep their doors open in these tough times, retain employees, and hopefully, start to create some new jobs. The SBIR and 

STTR programs provide billions to small firms involved in cutting 

edge research to develop the next new innovative technology for 

our great country. 

The SBA’s entrepreneurial programs and other technical assistance can help firms develop a business plan and hopefully find 

some new customers. How we define a small business even affects 

the regulatory process and what they are subject to. The Regulatory Flexibility Act requires agencies to assess whether the rule 

they are contemplating would have significant economic impact on 

a substantial number of small entities. If a business is not considered small, agencies are under no requirement to review the impact 

that regulatory changes would have on small firms. 

Since SBA’s inception, it has struggled to find a numerical definition for small businesses on an industry-by-industry basis. On five 

separate occasions, as the chair alluded to, between 1980 and 2008, 

the Agency has proposed a comprehensive revision of its size standards. However, these proposals were never fully implemented due 

to concerns that the changes would unfairly strip many small businesses of their eligibility. In these budget-limited times, perhaps 

we have a different problem. 

So the result has been a confusing, sometimes unfair, patchwork 

of regulations. The current system consisting of the 42 different 

levels covering over 1,000 different industries is complex. Thirtyone of these size levels are based on average annual receipts, eight 

count a firm’s number of employees, while three rely on other 

metrics altogether. In addition, the SBA has established 11 other 

size standards for its financial and procurement programs. Multiple industry groups have raised concerns that the complexity of 

the current size standards result in legitimate small businesses losing federal opportunities. I think again in these budget-limited 


rfrederick on DSKD9S0YB1PROD with HEARING
4 

times with less dollars available probably in the SBA budget it is 

time to revisit the issue. 

Under the authority of the Small Business Jobs Act of 2010 

passed in the last Congress, the SBA has issued proposed standards changes for a number of industries in the professional services, architect, and engineering section. In the proposal, the SBA 

has taken a number of steps to streamline and simplify the standards, theoretically to help firms and federal agencies determine 

who qualifies for a small business loan accurately and quickly. 

These changes include reducing number and size limits from 31 to 

8. The proposal also groups industries, as the chair said, under a 

common size standard. And while there is a lot of consensus on improving the system, the question is are these the right ways to improve it? 

Today we will examine how current size standards are applied 

in the real world, hopefully as a result of this panel. We will also 

hear from industries that will be directly affected by SBA’s proposed changes and help guide our decisions. It is my hope the SBA 

has learned from past failures and taken industry as well as congressional concerns into account when drafting the proposal. And 

I imagine I will hear that here. 

In advance of the testimony I want to thank all the witnesses 

who have traveled here for their participation and insights on this 

important topic. 

STATEMENTS OF WALTER HAINSFURTHER, PRESIDENT, 

KURTZ ASSOCIATES ARCHITECTS ON BEHALF OF THE 

AMERICAN INSTITUTE OF ARCHITECTS; JOHN WOODS, 

OWNER, WOODS PEACOCK ENGINEERING CONSULTANTS, ON 

BEHALF OF THE AMERICAN COUNCIL OF ENGINEERING 

COMPANIES; ROGER JORDAN, VICE PRESIDENT, PROFESSIONAL SERVICES COUNCIL; ODYSSEUS LANIER, PARTNER, 

MCCONNELL JONES LANIER AND MURPHY, LLC, ON BEHALF 

OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS 

Mr. SCHRADER. And do you want me to introduce the other witness at this time, Mr. Chair? 

Chairman WALSH. Yes, do. But let me also say how pleased I am 

to have Mr. Lanier here, as well. 

Mr. SCHRADER. It was my job to introduce you, Mr. Lanier. The 

chair did not forget you. 

Chairman WALSH. We both want to introduce you. And you can 

when we get to him. 

If Committee members have an opening statement prepared, I 

ask that they be submitted for the record. You will each have five 

minutes to testify. Do your best to keep it to five minutes, though 

I will be as lenient as I can be. So welcome to all four of you. 

We will begin with our first witness, again, Mr. Hainsfurther, 

who is testifying on behalf of the American Institute of Architects. 

He is the president of Associates Architects, a seven-person firm 

based in Des Plains, Illinois, and former national vice president of 

the American Institute of Architects. 

Mr. Hainsfurther, I look forward to your testimony. 


rfrederick on DSKD9S0YB1PROD with HEARING
5 

STATEMENT OF WALTER HAINSFURTHER 

Mr. HAINSFURTHER. Thank you, Mr. Chairman. 

Chairman Walsh, Ranking Member Schrader, and members of 

the Committee. My name is Walter J. Hainsfurther, FAIA. I am 

president of Kurtz Associates Architects, a seven-person architectural firm based in Des Plains, Illinois, and a former national vice 

president of the American Institute of Architects. 

As I mentioned to the chair on the way in, I have also over my 

30 years of practice done a number of projects not only in the chairman’s district but throughout the Chicago area. I want to thank 

you for the opportunity today to testify on behalf of my firm and 

the 76,000 members of the American Institute of Architects. 

The current economic crisis has affected every American but as 

this Committee knows all too well, it has hit small businesses, like 

mine, particularly hard. Billings at my company are down 80 percent from two years ago. I have gone from a firm of 25 architects 

five years ago down to five architects today. I personally have not 

taken a salary in two years so that I can keep the lights on and 

pay my employees. 

Architects are, by and large, small business people. Ninety-five 

percent of U.S. architecture firms employ 50 people or less. In fact, 

the vast majority practice in one or two person firms. They are 

truly the engine that drives the design and construction industry. 

The AIA wants to work together with the SBA to help American 

small businesses come out of this recession. When the SBA makes 

changes to its small business standards, AIA members pay attention. The SBA’s goal is to ease the administrative oversight by limiting the number of exemptions from standards and reduce the 

number of levels that they have for small business. The SBA also 

wants to increase the number of businesses that qualify as a small 

business and has proposed to increase the size standards accordingly. Their analysis states that it will increase the number of businesses that qualify for SBA programs from 35 percent to 41 percent, but for our members it has a far different effect. 

The AIA estimates that over 91 percent of architecture firms fall 

under the current $4.5 million standard. If the standard is raised 

to $19 million, over 97 percent of the firms will qualify as a small 

business. The proposed standard is being increased 322 percent, 

which would encompass not just a majority but almost every architectural firm in this country. In short, the SBA is asking firms that 

have five employees, like mine, to compete against those that have 

over 50. As you can see, the SBA’s goal of increasing participation 

in the architectural market is too broad and their proposal has 

overreached. 

The consensus is clear among AIA members that the proposed increase in the threshold is high. The AIA is continuing to gather 

comments from our members on the proper recommendation to 

make to the SBA. However, the AIA represents over 76,000 architects, intern architects, and allied professionals, and many will be 

impacted by these changes. To find the best recommendation for 

SBA, we ask the Committee to join with us in encouraging the SBA 

to extend the response period. We would appreciate at least another 60 days to continue to gather and compile information from 


rfrederick on DSKD9S0YB1PROD with HEARING
6 

our members so that the SBA can make the best decision using the 

most accurate data possible. 

We have two requests outside of the size standards for the Committee. The first is the review of the revenue calculation for architecture firms. In the past, AIA members have stated that over 50 

percent of their gross revenue can be attributed to payments that 

flow through to subcontractors. Those payments affect the firm’s 

gross revenue number but are not actually part of the firm’s revenue. The second issue is whether SBA’s use of receipts is appropriate for architecture firms. 

As you can tell, architecture firms can be extremely small, and 

in fact, in the recession, more small firms are created instead of 

consolidating. As people lose their jobs, they hang out their shingles. Net receipts may not accurately represent this situation as 

well as the number of employees. We believe that net receipts for 

these two reasons may not be the best metric to determine small 

businesses sizes. We ask the Committee for further review. 

In conclusion, I would like to thank Chairman Walsh, Ranking 

Member Schrader, and the members of the Committee for giving 

me the opportunity to testify before you today. I want to commend 

you for your dedication to the problems that small businesses face 

in this economy and for your leadership in advancing legislation 

that helps small businesses drive the economy. The challenges that 

we as small business people face are serious, but so is our commitment to play a leading role in rebuilding and renewing our country. 

Thank you very much. 

[The statement of Mr. Hainsfurther follows:] 


rfrederick on DSKD9S0YB1PROD with HEARING
7 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 20 66748A.001
8 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 21 66748A.002
9 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 22 66748A.003
10 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 23 66748A.004
11 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 24 66748A.005
12 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 25 66748A.006
13 

Chairman WALSH. Thank you, Mr. Hainsfurther. 

Our second witness is John Woods, testifying on behalf of the 

American Council of Engineering Companies. Mr. Woods is the 

founder and principal of Woods Peacock Engineering Consultants, 

Inc., a service-disabled veteran-owned small business that provides 

structural engineering services in Alexandria, Virginia. 

Welcome, Mr. Woods. I look forward to your testimony. 

STATEMENT OF JOHN WOODS 

Mr. WOODS. Thank you, Chairman Walsh, Ranking Member 

Schrader, and members of the Subcommittee. I appreciate the opportunity to testify before you today about the changes to small 

business size standards, particularly the unique considerations of 

A&E services. I will also address factors that must be considered 

when SBA proposes changing the small business size standard by 

400 percent. 

I represent the American Council of Engineering Companies, the 

voice of America’s engineering industry, with almost 6,000 member 

firms employing more than 500,000 engineers and other professionals responsible for $500 billion of private and public works annually. Over 70 percent of these 6,000 firms are small businesses 

with less than 30 employees. 

As ACEC members are working as we speak to better understand the rationale behind the SBA proposal, it has become very 

apparent that we need an extension of more than the present two 

months and the comment period identified by SBA. We must review their 16-month analysis to develop alternative approaches and 

consider the effects on future competition, QBS use, and current 

small firm finances and contracting opportunities. 

ACEC asks for your consideration and support of a September 

30, 2011, extension. We would like to draw your attention to a 

number of key issues. First, the actual use of engineering firms of 

varying sizes is unknown. If the proposed rule is put into place 

using the demographics of ACEC membership, more than 90 percent of the nation’s engineering industry, up from 70 percent from 

now, would be classified as small business. Data needs to be collected to better aggregate firms of various sizes doing responsible 

work based on many requirements, including licensure, regardless 

of contracting tier. 

A second key point, the size standard, ACEC policies of encouraging small firm participation in the federal sector should reflect 

the fact that small firms are an integral part of teams submitting 

on federal work and selected under QBS for their capabilities. The 

qualifications and responsibilities of each firm member are clearly 

delineated in the proposal they submit to the Agency when competing for contracts. 

A&E firms provide services in the very technical disciplines of architecture, mechanical, electrical, civil, structural, and other engineering. All states require professional licenses for the individuals 

performing this work, as well as for their firm. Like my Commonwealth of Virginia, the majority ownership of the firm must be licensed in the Commonwealth. 

Firm size and capabilities are also controlled by the interests of 

professionals and their firm business model as by the opportunities 


rfrederick on DSKD9S0YB1PROD with HEARING
14 

available to them. Many firms remained specialized and small for 

decades by intent. Selection boards consider all capabilities of all 

team member firms like ours when ranking firms under the qualifications selection. The team selected is required to perform the 

work with the proposed team individuals under contract. 

A third key point, these responsible roles are not reflected in 

small business goal achievement by federal agencies and revenue 

data is not available to SBA for assessing government small business utilization when analyzing size standards, for engineering 

services, team formation, and responsible roles go far beyond tracking prime contract awards with only census data. The size standard discussion is influenced by the impact of increased costs and 

pass-through revenues for small firms serving federal clients. The 

SBA proposal also does not take into account small business size 

standards under other regulations, such as labor, family leave, 

health insurance, defense contracting auditing, to name a few. 

A fourth key point, more effective small business utilization 

would be achieved through the development and retention of a contracting work force that understands A&E’s services and procurement rules. The insufficient number of contracting personnel often 

without experiencing in procuring A&E services or the industry has 

created a basis for large contracts that require full service, large 

national firms to win and perform the work. 

Finally, the current small business program establishes subcontract goals for small businesses based on a percent of work subcontracted. A better approach would be to establish the business 

subcontracting goals based on a percentage of funded prime contract dollar value, which would keep the proposed roles and easily 

resolve usage if all roles were not used. The change would eliminate the absorption of functions by the prime contractor resulting 

in no work for the tier small contractor. 

I thank the Subcommittee for the privilege and opportunity to 

address the A&E industries with the proposed size standards and 

I welcome any questions. 

[The statement of Mr. Woods follows:] 


rfrederick on DSKD9S0YB1PROD with HEARING
15 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 31 here 66748A.007
16 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 32 here 66748A.008
17 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 33 here 66748A.009
18 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 34 here 66748A.010
19 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 35 here 66748A.011
20 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 36 here 66748A.012
21 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 37 here 66748A.013
22 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 38 here 66748A.014
23 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 39 here 66748A.015
24 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 40 here 66748A.016
25 

Chairman WALSH. Thank you, Mr. Woods. 

Our third witness is Roger Jordan of the Professional Services 

Council. The Professional Services Council is the national trade association of the government professional and technical services industry. 

Mr. Jordan, we look forward to your testimony. 

STATEMENT OF ROGER JORDAN 

Mr. JORDAN. Chairman Walsh, Ranking Member Schrader, and 

members of the Subcommittee, thank you for the invitation to testify and the opportunity to discuss small business size standards 

today. 

When debates about industry size standards occur, often there is 

very little agreement. Very small businesses tend to advocate for 

lower size standards, companies operating in the middle of their industry size standards tend to advocate for status quo, and companies that are approaching are slightly above their size standard 

seek a higher level. 

The reason for the varied opinions is simple. Companies have a 

keen interest in maximizing their ability to compete for and win 

federal contracts that are exclusively set aside for small business 

competition. Given the significant increase in federal spending on 

services over the past decade there is much to be gained competitively from qualifying as a small business. Adding fuel to the debate around size standards is the fact that the federal government 

lacks policies regarding contractors operating in the mid-tier. That 

is, firms that were once eligible to receive small business set-asides 

but whose revenues now exceed the size standard if even by only 

one dollar. If SBA policy is not only to create federal contracting 

opportunities for small businesses but also to ensure long-term success and a sustainable growth pattern, then the plight of small 

businesses that graduate from their industry size standard should 

not be ignored and Congress should explore operations that will alleviate this binary approach and incentivize contracting opportunities for mid-tier businesses. 

During its evaluation, SBA relied on five equally weighted major 

factors to determine the proposed size standards, one of which is 

the impact on federal contracting and SBA loan programs. However, PSC recommends that greater weight should be given to the 

impact on federal contracting. In addition, SBA should broaden its 

evaluation of the federal contracting market to examine barriers to 

entry into the federal marketplace, not just the commercial space. 

This, in fact, might encourage SBA to reconsider the merits of 

adopting separate size standards for the purposes of federal contracting. The adverse impact on small businesses of a single size 

standard that covers federal procurement and all other SBA programs is documented in SBA’s own methodology in which it acknowledges that the disparity between small business federal market share and industry-wide share may be attributed to a variety 

of reasons, such as extensive administrative and compliance requirements associated with federal procurement, the different skill 

sets required by federal contracts, and the size specific contractor 

requirements of federal customers. 


rfrederick on DSKD9S0YB1PROD with HEARING
26 

That said, our members have not widely reported significant 

heartburn with many of the proposed increases to the size standards as many size standards were increased from 7 to either 10 or 

14 million, which will provide much needed flexibility for small 

firms to mature. There are, however, proposals for two areas, architectural engineering services and computer-related services, that 

require greater scrutiny. 

As my fellow panelists have already highlighted, the proposed 

size standard for A&E ballooned, which begs the question of what 

has changed so dramatically in that specific industry over the years 

to warrant a quadrupling of the size standard. In contrast, computer-related services have undergone significant changes over the 

last 20 years, yet SBA proposed raising size standards for those 

categories only by $500,000. In addition, SBA established common 

size standards for industries that share similar characteristics. According to the SBA, these common size standards reflect cases 

where many of the same businesses operate in multiple industries. 

This led SBA to establish a common size standard for a number of 

computer-related industries, even though the industry data supported a distinct size standard for each industry. For example, SBA 

analysis shows the computer facilities management services had a 

calculated industry-specific size standard of 35.5 million. Yet, by 

establishing a common size standard containing this category and 

other computer-related categories at a level of 25.5 million, SBA 

has eliminated legitimate small businesses from being able to qualify. 

In summary, PSC recommends the following. With specific regard to the size standard proposal, PSC recommends that SBA give 

more weight to the impact on federal contracting factor and broaden its analysis with specific federal market dynamics that distinguish the federal market from the commercial space. Taking this 

recommendation further, SBA should consider creating a completely separate set of size standards to be used for federal procurement purposes only. In addition, SBA should review its policies regarding the creation of common size standards. Under the proposed 

rule, the use of common size standards will eliminate small businesses from competition; whereas if the individual industry size 

standard had been adopted, then all small businesses would be 

able to compete. 

Beyond the common rulemaking process, SBA and Congress 

should support new and ongoing initiatives to incentivize contracting opportunities from mid-tier businesses to ensure that 

growing small businesses are provided at minimum some protection before having to always compete with large businesses. 

Lastly, Congress should provide a necessary oversight of SBA to 

ensure that it is abiding by the provisions enacted in last year’s 

Small Business Jobs Creation Act that require SBA to review and 

update the size standards every five years at minimum. 

Mr. Chairman, this concludes my testimony. Thank you for inviting PSC to testify today and for your attention to this important 

matter. I would be happy to answer any questions that you may 

have. 

[The statement of Mr. Jordan follows:] 


rfrederick on DSKD9S0YB1PROD with HEARING
27 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 47 here 66748A.017
28 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 48 here 66748A.018
29 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 49 here 66748A.019
30 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 50 here 66748A.020
31 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 51 here 66748A.021
32 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 52 here 66748A.022
33 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 53 here 66748A.023
34 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 54 here 66748A.024
35 

Chairman WALSH. Thank you, Mr. Jordan. 

I now yield to Ranking Member Schrader, who will introduce our 

next witness. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

It is my pleasure to introduce Mr. Odysseus Lanier, one of the 

four founding partners in McConnell Jones Lanier and Murphy, 

LLP. Over 180 full-time employees. That is great. Three office locations. Mr. Lanier’s firm is the third largest African-Americanowned accounting and consulting firm in the United States. Mr. 

Lanier also—I hope I am getting the name correct. Am I close 

enough? 

Mr. LANIER. You are correct. 

Mr. SCHRADER. Thank you. I hate to keep repeating the wrong 

name. 

Mr. LANIER. You are okay. You are okay. 

Mr. SCHRADER. Mr. Lanier leads the firm’s Federal Services 

Group, which specializes in working with federal, state, and local 

government agencies, much needed service by providing strategic 

planning, financial management, and operations review and support services. With more than 33 years of professional experience, 

he has extensive knowledge of federal, state, and local procurement 

policy, procurement strategies, contracting processes, and process 

improvement projects. So we look forward to your comments in particular. Welcome, Mr. Lanier. 

STATEMENT OF ODYSSEUS LANIER 

Mr. LANIER. Thank you very much. Good morning, Chairman 

Walsh, Ranking Member Schrader, and members of the Subcommittee. 

Thank you for the opportunity to appear at today’s hearing. My 

name is Odysseus Lanier and I am a CPA. I am a partner with the 

firm of McConnell Jones Lanier and Murphy, located in Houston, 

Texas. As Ranking Member Schrader has stated, there are 180 professionals in my firm and we have annual revenues of $17 million. 

I lead my firm’s Federal Services Group and specialize, as you said, 

in working with federal, state, and local government. 

I am here—I am pleased today to be testifying on behalf of the 

American Institute of Certified Public Accountants, of which I am 

a member. I am specifically here though to discuss a suitable small 

business size standard for NAICS’s 541211, Offices of Certified 

Public Accountants, and 541219, Other Accounting Services, as 

they most directly affect the work performed for the federal government by CPA firms. 

We comment the SBA for undertaking a comprehensive review of 

the existing small business size standards and thoughtfully—I 

want to emphasize thoughtfully—applying a statistically valid 

methodology which would raise the current standard from $8.5 million to $14 million in receipts. 

During a recent meeting I attended with representatives of the 

AICPA, other CPAs, and the SBA Size Standard team, it became 

evident that the data used by the SBA did not adequately reflect 

the accounting profession. As a result of that meeting, the American Institute of CPAs provided the SBA alternative data compiled 

from surveys of CPA firms conducted by the AICPA and an indusVerDate Mar 15 2010 01:56 Jun 15, 2011 Jkt 066748 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\A748.XXX A748

rfrederick on DSKD9S0YB1PROD with HEARING
36 

try publication. Taking the AICPA’s data and using the SBA’s size 

standard methodology, I calculated that a more appropriate standard would be at a minimum $19 million in receipts. 

Beyond these objective data-driven calculations warranting an increase from $14 million to $19 million, the AICPA proposes increasing the small business size standard to $25.5 million to compensate for other secondary factors in the middle market that affect the ability of small accounting firms to effectively compete for 

contracts in the federal marketplace. Importantly, two of those factors are primarily driven by discussions and suggested changes 

over the years in federal government procurement policy, an acquisition policy to reduce the number of vendors and increase the size 

of federal procurements. As you know, we are talking about reducing government. 

And also, the current use of the sources sought and request for 

information notices to literally determine if contractors are qualified prior to issuing an RFP as part of an acquisition planning 

strategy. Importantly, to fully capture the small accounting firms 

that have the adequate resources in infrastructure, personnel, and 

cash flow to properly perform services in the federal arena reserved 

for just small business contractors, we believe the size limit would 

need to be raised to $25.5 million. This higher limit is necessary 

to promote growth of these small accounting firms and to avoid this 

arbitrary cutoff in the middle of the market segment where a firm 

would quickly outgrow a lower size standard and be forced to compete most likely and most unsuccessfully with the largest firms. 

And the nuance in our business is the largest firms are the big 

four, which average about $6.8 billion in revenue. Seventeen million dollars does not compete with 6 billion dollars when you classify it as large. 

Let me talk a moment about my own firm as an illustration. 

When my partners and I formed our firm in 1999, having begun 

our businesses on the proverbial kitchen tables several years earlier, we had 28 full-time employees, no federal contracts, and a single-minded focus to build one of the largest African-Americanowned accounting and consulting firms in the United States. In 

2003, we were awarded our first federal contract, had 42 employees, and only $4.5 million in revenue. Over that time, we have not 

taken money out. We have made substantial investments in business development and back office infrastructure and technology, 

and proudly serve the federal, state, and local government markets. 

But, by 2008, we exceeded the SBA’s $8.5 million size standard 

limit. Since then we have had to complete for federal contracts as 

a large business and have not been nearly as successful because 

the infrastructure required to support our $14 to $16 million in 

revenues pales in comparison to the infrastructure of our competitors; firms, who have from $358 million to $10 billion in revenue 

and are 20 to 500 times larger than we are. Not surprisingly, our 

firm and other small firms like ours are finding it virtually impossible to compete in a federal market unless the SBA implements 

a significantly larger small business size standard. 

I encourage the Subcommittee to urge the SBA to revisit the 

small business size standard for NAICS 541211, Offices of Certified 

Public Accountants, and 541219, Other Accounting Services, and 


rfrederick on DSKD9S0YB1PROD with HEARING
37 

consider the factors I have discussed. It is widely recognized, as we 

all know, that small business is an important component in the 

economic health of our country. It is the engine that drives this 

economy. Why would you want to cut out a segment of the industry 

that would be able to provide value to the federal government as 

a small business? An increase in the small business size standard 

to $25.5 million will result in more opportunities for small accounting firms to provide federal agencies with high quality, value-added 

services, while at the same time fueling our economy. 

Thank you again for the opportunity to come and testify at today’s hearing. And I look forward to your questions. 

[The statement of Mr. Lanier follows:] 


rfrederick on DSKD9S0YB1PROD with HEARING
38 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 61 here 66748A.025
39 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 62 here 66748A.026
40 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 63 here 66748A.027
41 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 64 here 66748A.028
42 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 65 here 66748A.029
43 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 66 here 66748A.030
44 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 67 here 66748A.031
45 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 68 here 66748A.032
46 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert offset folio 69 here 66748A.033
47 

Chairman WALSH. Thank you, Mr. Lanier. We are actually going 

to have to go run and vote on the floor. It looks like about—it looks 

like a couple votes. So why do not we adjourn for about 30 minutes 

and we will reconvene after the votes. 

[Recess.] 

Chairman WALSH. Okay. We are back. We just voted to save the 

world. Now we are back. The Committee will reconvene. I will 

begin my five minutes of questioning and then I will yield to the 

ranking member. 

My first question is really directed to the entire panel. This is 

a complicated issue and each of your industries has unique issues 

and problems. Give me your sense, as you have been approaching 

these issues, as to how the SBA has been to work with. Have they 

been receptive to your concerns, your comments? 

Mr. Lanier, let us start with you and we will work our way 

down. 

Mr. LANIER. Okay. I will be glad to answer that question. 

You know, in my testimony I indicated that we had had a meeting with the SBA Size Standard office, and I will tell you they have 

been receptive to our comments. And in fact, encouraged us to follow the entire rule-making process and make sure that we got 

them back the data concerns that we had. Because the primary 

issue that we had was that the census data did not reflect the industry standards and publications that we use to determine exactly 

what the size of firms are in our industry, as well as the dispersion 

within our industry. So they have been very receptive to that, and 

quite frankly, I have—it has been a pleasure working with them 

to this point. I can personally vouch for that myself. 

Chairman WALSH. Mr. Jordan. 

Mr. JORDAN. Yeah. I would sort of echo those comments. I mean, 

this is an extremely big challenge and the SBA is in the unenviable 

position of no matter where they set the size standards there are 

going to be certain groups that are going to be unhappy. 

SBA has had an open door policy as far as we are concerned. 

They have come out and spoken with us. They have asked us for 

more information. I thought that that was a very transparent process by publishing the methodology well in advance. In addition, 

they outline a number of questions directly related to their proposals in which they are seeking specific industry feedback, and I 

think that in a lot of cases they hit on the right questions. 

Chairman WALSH. Great. Mr. Woods. 

Mr. WOODS. I cannot add a whole lot to that. The problem is 

from my industry, we are engineers; not economists and statisticians. SBA gave us, in fact, advance warning. Gave us a schedule 

of everything. Every time they changed it. But it took them 16 

months to figure this out and they are asking us to figure it out 

as engineers in two. So that is the only issue. 

Chairman WALSH. Mr. Hainsfurther. 

Mr. HAINSFURTHER. I would agree with that. 

AIA has a longstanding, positive relationship with the SBA. You 

know, for instance, a few years ago we had a major issue with 

retainage on contracts and the SBA actually championed that issue 

in getting the rules changed. So we appreciate that. And we are 

happy to note that Major Clarke is here today, and I believe also 


rfrederick on DSKD9S0YB1PROD with HEARING
48 

one of the gentlemen in charge of the standards is here today from 

the SBA. So we know they are open to comment and working with 

us. We just need a little more time to increase that collaboration 

and make the standards work for everybody concerned. 

Chairman WALSH. Great. Mr. Woods, let me ask you a quick 

question. In your statement, you referred to the various disciplines 

encompassed by engineering firms, such as mechanical, electrical, 

civil, structural, etcetera. The current size standards do not distinguish between these. And in the proposed new size standards these 

would be wrapped up into the combined architectural and engineering services size standard. Given the different characteristics, do 

you think the SBA should propose individual size standards for 

each engineering subspecialty? 

Mr. WOODS. No. Very simply. It works well to group those together. 

Chairman WALSH. Okay. 

Mr. WOODS. Our problem with the engineering thing is the statistics that are being used, because they are very, very large firms. 

And I will say somebody like Boeing or Lockheed-Martin provide 

engineering services. And if they provide them in the same NAICS 

code that I provide structural engineering services in, that is a real 

misnomer as to who is doing the work. 

Chairman WALSH. Great. Let me ask one more quick question at 

this point and then I will yield to my ranking member. 

Mr. Jordan, for the computer facilities management services you 

pointed out that the calculated industry-specific size standard is 

35.5 million. Before SBA adopts the common size standard and reduces it to 25.5 million, can you explain to the Committee what 

this will mean for a business with average receipts of 30 million? 

Mr. JORDAN. Absolutely. Simply put, they will be shut out from 

small business competition. It stems from the problem of creating 

these common size standards in which they want to keep like industries grouped together. In certain cases it makes sense, but 

where the size standards differ significantly, they ought to consider 

breaking those up, or at the very least they have got to go with the 

higher size standard to avoid eliminating small businesses from 

being able to compete. 

Chairman WALSH. Okay. Great. Let me stop right there and I 

will yield to Mr. Schrader for his questions. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

I guess I am concerned a little. There is this balance going on 

out there about how we do this but let us start with hopefully a 

fairly easy question. I guess each panelist just respond. And the 

goal has been to decrease the number of categories—one of the 

goals has been to decrease the number of categories, i.e., make it 

simpler. I assume that means not just simpler for SBA but simpler 

for different businesses to figure out do they qualify or not. Is the 

general consensus here that it is good to reduce the number of different categories? Mr. Lanier. 

Mr. LANIER. Yeah. Let me take a stab and answer that question. 

I think it is because—I will use my firm as an example. When 

we got sized out of the small business arena with the federal government, we had to make a strategic business decision to move into 

what we call related categories. Related NAICS codes. Okay? And 


rfrederick on DSKD9S0YB1PROD with HEARING
49 

we moved into some related NAICS codes that were potentially 

horizontally integrated into our business. So we created a weapon 

systems engineering and logistics business underneath our consulting group in the accounting firm. Had we not done that, we 

would be on the street right now because we could not compete in 

our core competency. And our core competency stretches across industry codes. It is 541611 as well. That size standard down there 

is $14 million. That is consulting services. Okay? 541219, that is 

Other Accounting. 541211, that is CPA. We cut across all those and 

it makes sense to group the like industries together based on the 

way your industry does business and how you provide these services to the various sectors of the economy. 

Chairman WALSH. Mr. Jordan. 

Mr. JORDAN. Yeah, I think again, it comes down to what the actual numbers attributed to each of those categories are. Take engineering and architecture, for example. Those numbers are vastly 

different, and so grouping them together just does not make a 

whole lot of sense. 

Chairman WALSH. Okay. Mr. Woods. 

Mr. WOODS. I agree with it. Yeah, I think that, you know, size 

standards can be confusing. Obviously, oftentimes simpler is better 

but you have to look at whether the correct standards, not just the 

size and, you know, as Mr. Jordan pointed out, I think that perhaps we are going a little too far. What we need is more time, really, to give it an honest answer about that. 

Chairman WALSH. It sounds like everyone agrees on that. 

I am a little concerned in that we, in this budget-limited environment that we are in, it is likely the SBA is going to have probably 

less money rather than more money to work with in terms of backing loans and what have you. And with that in mind, one of the 

ways to look at this is with less money you should be decreasing 

the size of small businesses available to compete. And while that 

is not necessarily a great thing for those mid-size companies, how 

should we respond to that? Are a Congress and we are facing a situation of very little money. Who really should be getting the 

money? Should we create a mid-size type of category? Not all small 

businesses are small and there has been a lot of discussion about 

it is not the very small businesses that create the jobs that pull us 

out of this recession. So I am sensitive to both sides of the discussion. And we are going to have very little money going forward, 

and who should we be targeting? The small businesses or the midsize businesses given that? Let us go this way. Mr. Hainsfurther. 

Mr. HAINSFURTHER. Ranking Member Schrader, obviously, we 

are all small businessmen, and in our practices almost all of the 

firms within architecture, more than 80 percent of them are under 

five employees. And so we have a very different perspective I would 

say because architects, you know, they generate, I think, about 

eight additional jobs for every architect job in the world. So we 

need that capital focused on truly small practices because that is 

our world and that is the vehicle that we live in. 

Obviously, let us say if I was a contractor, my size would be tremendously different because the needs to perform that work are 

different. The capital needs are more intensive. So we get by with 

very little capital, you know, pen and paper basically and a comVerDate Mar 15 2010 01:56 Jun 15, 2011 Jkt 066748 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 E:\HR\OC\A748.XXX A748

rfrederick on DSKD9S0YB1PROD with HEARING
50 

puter. So I think that it is going to depend on what industry you 

are in and it is going to vary all over the place. 

Mr. SCHRADER. I am assuming that we still have different categories, obviously, with different size or employee receipt size 

standards involved. So given that, you know, with less money what 

should we do? 

Mr. HAINSFURTHER. Well, as I said, most of our members, you 

know, what is happening is they are becoming more small firms. 

So that need is even greater. Access to capital, obviously, if you do 

not have a track record, is very hard to come by. 

Mr. SCHRADER. Sure. 

Mr. HAINSFURTHER. So as the smaller firms start to blossom, because they will, we know that, they need the access to capital as 

opposed to a mid-size firm which has got a track record, they have 

built a record of success, and they will have better access to capital. 

And so if the purpose of a SBA loan or a small business set-aside 

is to start moving these smaller firms to make them more successful, it really needs to be targeted for that purpose if that is the purpose that you are trying to achieve. 

Mr. SCHRADER. Thank you. 

Mr. WOODS. I made the statement that part of the issue is I am 

very sympathetic to the mid-size firms because in the architectural 

engineering business we are a specialized group and we are selected on the QBS, which is very important. Therefore, we end up 

needing the most qualified team members. But if the contract says 

that we have got to subcontract out 35 percent of it and leave 65 

percent to the prime, that is very difficult in many cases for a midsize firm to participate. 

If you did it on the basis of—and it would not take 35 percent, but if we had a $10 million contract and it was based on awarded 

dollars that the small business had to receive 10 percent of it, a 

million dollars, and that is the criteria, then it would not make any 

difference to the mid-size firms. You could have two or three midsize firms that could team and perhaps be qualified. 

It works very well. The Metropolitan Washington Airport Authority actually uses the percentage of dollars rather than the percentage of subcontracted out. So nobody in our business wants to 

outgrow small. And I have got colleagues who have done that but 

they have returned to small business because they could not get 

any work as a mid-size. 

Mr. SCHRADER. Interesting. 

Mr. JORDAN. With regards to the loan programs, SBA did an 

analysis and its current revision. When they looked at the impact 

on the loan programs, they determined that in the 54 category it 

was only the micro firms that were applying for those types of 

loans. Therefore, an increase in the size was not really having an 

impact on those loan programs. 

With regard to the mid-tier, you know, I do not know that we 

need to create a separate category, but certainly we need to explore 

ways and potential opportunities to provide them with some opportunities. 

Mr. SCHRADER. As they grow. 

Mr. JORDAN. Absolutely. 

Mr. SCHRADER. Yeah. 


rfrederick on DSKD9S0YB1PROD with HEARING
51 

Mr. LANIER. From my perspective, the nuances of the accounting 

industry are totally different. The barriers to entry are very, very 

low. You do not have to have a lot of capital. I venture to say right 

now if you look at the SBA loan programs, you have very few, if 

many at all, CPA firms that go and apply for loans, except at the 

micro-level that Mr. Jordan is talking about here. 

So I think that we need to have the ability for capital for that 

sector, but when you get to the mid-size, yes, you need to take a 

look at that as well because if you cannot get access to the capital 

by normal means in the capital markets, such as going to your 

banks and having your past performance to do that, there may 

need to be some look at that to see if there are loan programs that 

could potentially help those firms. But at the same time, a broad 

program, it would really affect only the smallest businesses in our 

sector for sure. 

Mr. SCHRADER. Very good. Thank you. I yield back, Mr. Chair. 

Chairman WALSH. Thank you. Let me recognize my colleague 

from California, Ms. Chu, for some questioning. 

Ms. CHU. Thank you, Mr. Chair. 

Mr. Woods, in your testimony you pointed out that the same size 

firms operating in states or localities within high cost of living may 

show inflated revenues which could cause them to be penalized in 

a size standard definition. Since I represent the Los Angeles area, 

my ears perked up when I heard that. This issue is of importance 

to contractors in my district, obviously, and so how could we develop fair standards for businesses in areas where there is a high 

cost of living without creating more bureaucracy and confusion in 

the system? 

Mr. WOODS. Well, that is one of the reasons that ACC is, quite 

frankly, not opposed to raising the size standard for our industry 

$8 to $10 million. I am very appreciative of your constituents. I 

know some of them well. We actually have the same problem in the 

Metropolitan Washington area as they do in New York City and 

perhaps even in Chicago. 

If you looked at it though from my firm, if you use 30 people in 

a firm and you used revenue—because all we sell is time and expertise—if the revenue per employee was $200,000 per employee, 

for a 30-person firm you would be talking about a $6 million size 

standard. If you increase that to $10 million, then you provide not 

only for some subcontracting pass-through but you also provide 

some additional leverage for higher cost areas. 

Ms. CHU. Very good. Thank you. 

Mr. Lanier, your firm exceeded the small business size standard 

for accounting and consulting firms. As you stated in your testimony, your $14 to $17 million in revenue pales in comparison to 

the firm’s $358 million to $10 billion in revenue and so you find 

yourself competing with firms that are 20 to 500 times larger than 

yours. 

Other than continuously adjusting the size standards to accommodate firms that are growing and therefore, ineligible for small 

business contract opportunities, what are things that the SBA and 

Congress can do to support the mid-tier firms who have outgrown 

the small business definition so that they can continue to grow? 


rfrederick on DSKD9S0YB1PROD with HEARING
52 

Mr. LANIER. Yeah. I think the first step is to make sure that we 

continue to level the playing field by making sure that the size 

standards continue to be reviewed on an ongoing basis. I think the 

Senate put some legislation out through Senator Landrieu’s committee that requires those standards to be reviewed on a continuing basis. 

Now, the other thing that we can do is look at federal procurement policy at the same time. If you are going to look at mid-tier 

firms, allow us to go up to a level so that we will not be squeezed 

out of the middle market and then restrict some of the contract 

bundling exercises that some of the agencies do to try to constrict 

the number of contracts out there. I am sorry, constrict the number 

of vendors and then increase the size of the contracts. So you have 

to take a look at all those variables at that mid-market level to 

make sure the opportunities are still there for the mid-tier small 

businesses. 

Ms. CHU. Mr. Jordan, do you have any thoughts on this? 

Mr. JORDAN. No. I would largely agree. And on his last comment, 

we have seen instances where you are seeing rather large contracts 

being set aside for small businesses. And that has some real implications. It presents real risk to the small businesses to be able to 

perform that work. And really what we ought to be advocating for 

is that the federal acquisition workforce is rightsizing contracts for 

companies of all sizes so they each have their individual opportunities. 

Ms. CHU. Yes, Mr.—— 

Mr. LANIER. Could I come back and follow up with that for one 

second? One of the things that I think we need to look at is, is this 

entire infrastructure issue associated with being able to support 

those size contracts? If you are going to have the large contracts 

and you have an acquisition policy that qualifies the House—and 

I mean qualifies the House, doing procurement planning—the acquisition professionals tend to send out sources sought notices and 

RFIs that ask for the capability and the capacity to be able to do 

those—perform those large contracts. 

If you do not move the standard up such that mid-tier firms can 

demonstrate the ability to handle that work, you have a procurement official that manages three kinds of risk. They manage cost 

risk, schedule risk, and technical risk. All of us come from a profitoriented environment, but the government manages risk. 

And when you are managing technical risk, the first thing you 

are looking at is capacity and past performance. And if you do not 

have the ability to demonstrate that you have handled some of 

those larger procurements, and you cannot do that at $8.5 million 

where we are right now, you are completely shut out and the first 

thing an acquisition official will do is take—is mitigate that risk by 

putting that procurement in full and open competition. And that is 

a double-edged sword because it hurts the industry, I mean, the 

Agency for Mitsubishi to be able to get that 23 percent small business goal. And it hurts those of us who have to end up competing 

now with the Big Four firms and the firms who are, like I said, 

you know, 20 to 500 times larger than we are. So that is the area 

that we really need to focus on here because that discussion has 


rfrederick on DSKD9S0YB1PROD with HEARING
53 

been going on for the last 10 years. And what you need to do is 

it is time address that at this point. 

Ms. CHU. Thank you. I yield back. 

Chairman WALSH. Mr. Hainsfurther. 

Mr. HAINSFURTHER. Could I just add something to that? Obviously, in architecture and engineering it is a slightly different process because it is a qualification-based selection process. But they 

still look for that track record in that, you know, I would disagree 

slightly with the term managing risk. They are almost trying to 

avoid risk in many cases. And so they are looking for the firms that 

have a big track record, which many times a small firm does not 

necessarily have to do—have behind him. 

But, for instance, I would not want to go compete and let us say, 

submit qualifications for a federal office building, you know, in 

downtown Chicago but I very well would like to do the OSHA office 

that is right next door to my office in my suburban office building. 

So we have to maintain that kind of perspective I would say, that 

qualification-based selection does not necessarily mean what I 

would call quantity-based selection, which means I have done 100 

of them just like this, but that I have that ability to do it and to 

do it correctly is very important. And so, you know, as long as you 

try and maintain those opportunities, I think it levels that playing 

field as Mr. Lanier mentioned. 

Thank you. 

Chairman WALSH. Thank you Mr. Hainsfurther. Thank you to 

my colleague from California. 

I only have two other real quick questions, actually coming right 

back at you, Mr. Hainsfurther. You stated that for the average AIA 

member, over 50 percent of their representative can be attributed 

to payments that flow through to subcontractors. What does this 

mean in terms of a receipts-based size standard? And how would 

you like SBA to address this issue when creating that size standard. 

Mr. HAINSFURTHER. Currently, the SBA does account for passthroughs. And that is going to subconsultants, like Mr. Woods’s 

firm and his members. It goes to vendors that supply us with printing and other resources. So the issue with that as far as we are 

concerned is that if they continue to maintain that pass-through 

and recognize, that would be just fine with us because it is not a 

clear picture of what the revenue really is. The other opportunity, 

of course, is to look at net revenue and see what is actually flowing 

directly into the aspect of the firm. 

Chairman WALSH. Great. Thank you. Mr. Lanier. 

Mr. LANIER. Yes, sir. 

Chairman WALSH. Given that the definition of a small business 

according to the Small Business Act is one that is independently 

owned and operated and which is not dominant in its field of operation, do you feel that this proposed rule adequately considers 

dominance in the field of operations? 

Mr. LANIER. I am going to make that industry-specific to the accounting industry. 

Chairman WALSH. Please do. 

Mr. LANIER. It does not consider dominance—it does consider 

dominance in the field but it considers dominance in the field using 


rfrederick on DSKD9S0YB1PROD with HEARING
54 

data from a source that is not industry recognized in terms of who 

is our oligopoly. Who constitutes our oligopoly? Our oligopoly is 

constituted by four firms. If you look at the census data that the 

SBA used in the calculation for 2007, that says those firms have 

$5.2 billion average revenues. Okay? Well, when you look at the 

data from Accounting Today, which is our publication that lists the 

top 100 firms every year in our industry, that number is $6.8 billion average among those four. 

Now, let us talk about that for a second. Okay? The two most 

sensitive variables in the primary factors for calculating size standards represent, number one, the four firm concentration ratio that 

is in the industry dominance category, and number two, the distribution of firms by size. X-number of firms by classification have 

X-number of receipts in the industry. Those are the two most sensitive variables in the calculation. So if you use data that is not reflective of the industry, your numbers are skewed. So, yes, I do believe that industry dominance is taken into effect, but you just 

have to have the correct data. 

Chairman WALSH. Thank you. 

Mr. LANIER. Okay. 

Chairman WALSH. I am through with my questioning. Mr. Schrader. 

Mr. SCHRADER. I have no more. 

Chairman WALSH. Great. Thank you all for participating today. 

As this Committee continues to focus on creating opportunities for 

small businesses, we will keep working on the issues of who is a 

small business. 

Following today’s hearing I will be sending a letter to the Small 

Business Administration to share what we have heard today, and 

I will request that the SBA keep the rule-making open longer so 

that small businesses can provide substantive comments. We will 

ensure that your voice is heard and will support policies to help 

you create jobs and spur investment. 

I ask unanimous consent that members have five legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. 

Thank you again all very much. The hearing is now adjourned. 

[Whereupon, at 11:05 a.m., the subcommittee was adjourned.] 


rfrederick on DSKD9S0YB1PROD with HEARING
55 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 89 66748A.034
56 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 91 66748A.036
57 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 92 66748A.037
58 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 93 66748A.038
59 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 90 66748A.035
60 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 94 66748A.039
61 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 95 66748A.040
62 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 96 66748A.041
63 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 97 66748A.042
64 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 98 66748A.043
65 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 99 66748A.044
66 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 100 66748A.045
67 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 101 66748A.046
68 


rfrederick on DSKD9S0YB1PROD with HEARINGInsert graphic folio 102/200 66748A.047