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94–804 2015

SIZING UP SMALL BUSINESS: SBA’S FAILURE TO 

IMPLEMENT CONGRESSIONAL DIRECTION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONTRACTING AND 

WORKFORCE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JUNE 4, 2015 

Small Business Committee Document Number 114–014 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

TOM RICE, South Carolina 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARK, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

MARK TAKAI, Hawaii 

KEVIN FITZPATRICK, Staff Director 

STEPHEN DENNIS, Deputy Staff Director for Policy 

JAN OLIVER, Deputy Staff Director for Operation 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Richard Hanna ................................................................................................ 1 

Hon. Mark Takai ..................................................................................................... 2 

WITNESSES 

Mr. Jim Fontana, Dempsey Fontana, PLLC, Reston, VA, testifying on behalf 

of the Small Business Value Added Reseller Consortium ................................ 4 

Mr. Stephen Charles, Co-Founder, Executive Vice President, immixGroup, 

Inc., McLean, VA .................................................................................................. 6 

Mr. Ronald Reim, Executive Vice President, Oculus, Inc., St. Louis, MO, 

testifying on behalf of the American Institute of Architects ............................ 7 

Mr. Roger Jordan, Vice President of Government Relations, Professional Services Council, Arlington, VA ................................................................................. 9 

APPENDIX 

Prepared Statements: 

Mr. Jim Fontana, Dempsey Fontana, PLLC, Reston, VA, testifying on 

behalf of the Small Business Value Added Reseller Consortium ............. 22 

Mr. Stephen Charles, Co-Founder, Executive Vice President, 

immixGroup, Inc., McLean, VA ................................................................... 36 

Mr. Ronald Reim, Executive Vice President, Oculus, Inc., St. Louis, MO, 

testifying on behalf of the American Institute of Architects ..................... 52 

Mr. Roger Jordan, Vice President of Government Relations, Professional 

Services Council, Arlington, VA ................................................................... 57 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Engineering/Remediation Resources Group, Inc. - ERRG ............................. 64 

Kemron Environmental Services ..................................................................... 66 

Nobis Engineering, Inc. .................................................................................... 69 

The 562910 Small Business Community ........................................................ 73 

Sovereign Consulting Inc. ................................................................................ 77 

Tantara Corporation ......................................................................................... 80 

USA Environmental, Inc. ................................................................................. 82 

Watermark ........................................................................................................ 84 

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(1) 

SIZING UP SMALL BUSINESS: SBA’S FAILURE 

TO IMPLEMENT CONGRESSIONAL DIRECTION 

THURSDAY, JUNE 4, 2015 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON CONTRACTING AND WORKFORCE, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:05 a.m., in Room 

2360, Rayburn House Office Building, Hon. Richard Hanna [chairman of the Subcommittee] presiding. 

Present: Representatives Hanna, Knight, Bost, Hardy, Chu, Lawrence, Takai, and Clarke. 

Chairman HANNA. I call this hearing to order. I want to welcome 

Congressman Mark Takai, who is joining us today as the new 

ranking member of this Subcommittee. 

Welcome. I look forward to working with you. I look forward to 

a hearing in Hawaii, incidentally. That might be not a bad thing. 

Mr. TAKAI. Everyone is invited. 

Chairman HANNA. Also, I would like to welcome Congressman 

Mike Bost, who is sitting in on this hearing today. 

The topic of today’s hearing goes to the essence of what we do 

as a Subcommittee since it deals with who we consider a small 

business. When we ask who qualifies as a small business, the answer to that question has ramifications for all the Small Business 

Administration programs. The answer also governs which companies are eligible for the $200 billion in prime and subcontracts each 

year. 

The answer isn’t necessarily a simple one. A small aircraft manufacturer isn’t going to look like a small architectural firm. If you 

ask most businesses, they will tell you that they are small, but that 

their next largest competitor isn’t a small business. For these reasons, Congress gave the SBA the ability to decide which firms are 

small on an industry by industry basis. However, we require that 

the SBA base these decisions in a rigorous rulemaking process. 

Unfortunately, today’s hearing highlights a problem with that 

process. During the 112th Congress, the Small Business Committee 

strengthened the rules governing how the SBA defines a small 

business. This legislative change, which was signed into law on 

January 2, 2013, was prompted by complaints from industries such 

as architects, engineers, and technology service providers that the 

size standards do not reflect the reality of who they were in their 

businesses. 

However, 2-1/2 years later the SBA has yet to implement the 

changes that were made during the 112th Congress. Indeed, a reSBREP-219 with DISTILLER

2 

cent proposed rule ignored these important bipartisan statutory 

changes. At the time, the Committee submitted comments warning 

the SBA that unless they withdrew the proposed rule they were 

courting a lawsuit they couldn’t win. The SBA is proceeding with 

this proposed rule and says it will be implementing the statutory 

changes sometime next year. 

In the interim, they are deciding whether the size standards that 

govern tens of billions of Federal contracts each year. Currently, 

firms in these industries have little recourse. They can sue in Federal district court at a great cost of money and time that they can 

ill afford. 

I look forward to hearing from today’s witnesses about the effects 

of the SBA’s failure to comply with these statutory changes. The 

Subcommittee also welcomes any comments you may have on Congressman Bost’s proposed solutions to the problem, H.R. 1429, the 

Stronger Voice for Small Business Act of 2015, which passed the 

House as part of this year’s National Defense Authorization Act. 

The testimony collected today by us will go to the SBA, to the 

Office of Management and Budget, in a effort to further inform how 

the SBA is promulgating size standards. 

I now yield to the ranking member for his opening comments. 

Mr. TAKAI. Thank you, Mr. Chairman, and thanks for holding today’s hearing. 

Small business plays a critical role in America’s economy. I come 

from Hawaii where over 90 percent of the businesses are considered small and more than 50 percent of the workforce works for a 

small business. 

Over the years, Congress has created numerous program setasides, tax preferences, and SBA loan programs to help these small 

businesses succeed. However, the advantages conferred by these 

programs have led to heated debate over what is truly a small 

business and acceptable small business size standards to govern 

eligibility. 

The definition of what exactly is a small business has eluded us 

in many different areas in policy as the definition may work for a 

business in one context but may be entirely inefficient in another. 

On numerous occasions, the SBA proposed a comprehensive revision of its size standards, but the end result was a confusing patchwork of regulation. 

The Jobs Act of 2010 attempted to clarify these standards, yet in 

conducting reviews various stakeholders raised concerns about the 

oversimplification of the process and questioned whether true small 

businesses were being left out of the definitions. 

To address these concerns, provisions were included in the 

NDAA of 2013 that required SBA to continue its process only if certain data was made publicly available prior to the issuance of any 

proposed size standards revisions. But for reasons unclear to us, 

SBA has yet to implement these requirements and small businesses continue to be disadvantaged by these reviews. 

Without an accurate small business definition, firms are excluded from programs designed to aid in their growth and allow 

them to create more jobs. For example, last year, small entities 

accessed over $30 billion in capital using SBA loans. Many businesses use loan proceeds to keep their doors open, retain employSBREP-219 with DISTILLER

3 

ees, and create new jobs. However, firms deemed other than small 

were precluded from accessing this capital. 

Not only does this process harm business operations, it impacts 

Federal protections guaranteed to small firms. If a business is not 

considered small, agencies are neither obligated to review the impact that regulatory changes have on small firms nor offer alternatives. Most importantly, businesses excluded from the definition 

are barred from participating in various contracting programs 

which awarded almost $100 billion in contracting dollars just last 

year. 

On the other hand, if a size standard is overinclusive, businesses 

that would otherwise be considered large would be able to compete 

in these programs, depriving small businesses of contracting opportunities. 

As previously attested before this Committee, small businesses 

already have difficulty competing in the Federal marketplace. With 

some large businesses already receiving small business contracting 

dollars, it is vital the size process be fair and balanced. 

Today we will hear from multiple people that have been affected 

by the process currently in place. I want to be clear that we are 

not advocating for one size standard over another, but rather looking for a transparent process that results in sizes reflective of industry standards. 

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

for their participation and insights into this important topic. 

Thank you, and I yield back. 

Chairman HANNA. Thank you. 

Our first witness is Jim Fontana, cofounder and managing partner of Dempsey Fontana, PLLC. He has over 30 years of experience 

as an attorney, specializing in government and commercial contracts. He is testifying today on behalf of the Small Business Value 

Added Reseller Consortium. 

Sitting next to him is our second witness, Stephen Charles, cofounder and executive president of immix, Inc. Mr. Charles is the 

coauthor of ‘‘The Inside Guide to the Federal IT Market,’’ a resource for technology companies interested in doing business with 

the government. Immix’s group manages the contracts of many 

small businesses, working with more than 600 value added resellers. 

I now yield to my colleague, Congressman Bost, to introduce our 

next witness. 

Mr. BOST. Thank you, Chairman and Ranking Member, thank 

you both for being involved with this hearing today and allowing 

me to introduce the next participant. 

Mr. Ronald Reim serves as executive vice president of Oculus, 

Inc., a small business architectural design firm with offices in St. 

Louis and Dallas. While Oculus is not physically located in my congressional district, many of the employees actually live in the 12th 

Congressional District of Illinois. The company has also worked on 

a project in southwest Illinois, which also include projects at Scott 

Air Force Base. He is testifying here today on behalf of the American Institute of Architects. 

Mr. Reim, thank you for being here, and I look forward to hearing your testimony. 

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Chairman HANNA. I now yield to Ranking Member Takai to introduce our fourth witness. 

Mr. TAKAI. Thank you, Mr. Chairman. 

It is my pleasure to introduce Mr. Roger Jordan. Mr. Jordan is 

the vice president of government relations at the Professional Services Council, a national trade association of government, professional, and technical services industry businesses. At PSC, he is 

primarily engaged in leading PSC’s legislative efforts on a number 

of issues impacting Federal acquisition policy. 

Prior to joining PSC, he worked for 10 years as executive director 

of the Small Firm Council and the director of the international and 

state legislative programs at the American Council of Engineering 

Companies. 

Welcome, Mr. Jordan. 

Chairman HANNA. Mr. Fontana, you may begin. 

STATEMENTS OF MR. JIM FONTANA, DEMPSEY FONTANA, 

PLLC, RESTON, VA, TESTIFYING ON BEHALF OF THE SMALL 

BUSINESS VALUE ADDED RESELLER CONSORTIUM; MR. STEPHEN CHARLES, COFOUNDER, EXECUTIVE VICE PRESIDENT, 

IMMIXGROUP, INC., MCLEAN, VA; MR. RONALD REIM, EXECUTIVE VICE PRESIDENT, OCULUS, INC., ST. LOUIS, MO, TESTIFYING ON BEHALF OF THE AMERICAN INSTITUTE OF ARCHITECTS; AND MR. ROGER JORDAN, VICE PRESIDENT OF GOVERNMENT RELATIONS, PROFESSIONAL SERVICES COUNCIL, 

ARLINGTON, VA 

STATEMENT OF JIM FONTANA 

Mr. FONTANA. Thank you. Good morning, Chairman Hanna, 

Ranking Member Takai, and members of the Subcommittee. As you 

stated, my name is Jim Fontana, founding member of Dempsey 

Fontana law firm. I thank you very much for the opportunity to 

testifying today. 

Today I am going to chat and testify on behalf of 13 small information technology value added resellers. That is a mouthful, so we 

will just say IT-VARs. These 13 companies have formed a coalition 

called the VARC, Value Added Resellers Coalition. The companies 

are representatives of thousands of other, similarly situated ITVARs around the Nation that compete on individual Federal agency small business set-aside solicitations or multibillion-dollar agency program requirements only for small business. 

The VARC members fall under various programs, including the 

Small Disadvantaged Businesses, Women-Owned Businesses, Veteran-Owned Businesses, and small businesses that are located in 

what we know are HUBZones. 

On behalf of the VARC, I am expressing my support for H.R. 

1429, introduced by Representative Bost, called the Stronger Voice 

for Small Business Act of 2015. The underpinnings of my support 

are twofold. First, businesses selling goods and services to the government that are certified as small under SBA regulations are subject to the SBA’s changing size standards. And as was mentioned 

and as you are aware, the Small Business Jobs Act of 2010 directs 

the SBA to conduct a detailed review of all size standards every 5 

years. 

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5 

The only avenue for these small companies to challenge an SBA 

size standard is for such companies to file Federal lawsuits under 

the Administrative Procedures Act. The Stronger Voice Act will 

allow small firms a quicker and much less expensive administrative forum to challenge such size standards, as opposed to the 

mounds of pleadings, motions, discovery, hearing-related documents. At the end of the day, these small companies will be afforded a much less expensive forum than going to Federal court or 

resorting to full-blown litigation. 

Secondly, the administrative forum created by the Stronger Voice 

Act is particularly needed at this time, given the SBA’s recent proposed deletion of the 150 employee-based size standard contained 

under Note 18 of the NAICS Code 541519, which applies to ITVARs. The deletion of this employee size standard would leave only 

the $25.5 million revenue-based size standard under that code. 

I say $25.5 million. That is what the SBA used to do its analysis. The real standard was at the time $27.5 million. So I will just use 

$27.5 million. 

I will say that the SBA had mentioned to me, in a meeting with 

them on March 24, that they had written a letter to the full Committee stating that they would finalize the rule sometime this summer. 

Now, there are a number of reasons why this proposed rule with 

respect to this particular NAICS code applying to IT-VARs should 

not be implemented and represents a valid backdrop for the 

Stronger Voice Act. And so in the interest of time, I will just summarize those reasons. 

First, the SBA’s decision to eliminate the IT-VAR employee size 

standard is based on outdated data that claims that the IT-VAR, 

the 150-employee count, is more or less equivalent to $27.5 million 

in receipts under this NAICS code. And just quickly, that assumption is clearly wrong. 

I have attached to my full statement data a survey of some of 

the major government-wide acquisition contracts, or GWACs, that 

show clearly, just on that data—it is not perfect data, but just on 

that data—that at least 43 percent of those IT-VARs that were considered small will not be considered small if this proposal is put 

through. And so just doing our own analysis, we find out that that 

percentage is much higher. 

I will add that in 2002, going into 2003, the SBA, when they first 

established this size standard, had concluded, and I will just quote 

briefly from the language of that notice, quote: ‘‘An employee size 

standard is considered a better measure of the size of IT-VAR operations than receipts.’’ 

The SBA based this conclusion on a very exhaustive and detailed 

quantitative analysis, but no such analysis was performed under 

this proposed rule. Frankly, I don’t think those numbers are there. 

I don’t think that the SBA can provide any such explanation under 

any objective standard why the IT-VAR business is different today 

than it was back then. 

The bottom line is that the proposed rule is not supported by accurate and relevant market data, and it should not be passed. I 

think that the SBA should consult further with the procuring agencies and affected small IT-VARs as well as this Subcommittee. 

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6 

In addition, Congress should adopt the Stronger Voice Act to 

allow small businesses the ability to administratively challenge 

these proposed changes to fairly protect their interests. 

Again, I thank you for the opportunity to testify at this hearing. 

I would be pleased to answer any questions you or any member of 

the Subcommittee may have. 

Chairman HANNA. Thank you. 

Mr. Charles. 

I should have mentioned there is a 5-minute rule, but we want 

to hear what you have to say. 

STATEMENT OF STEPHEN CHARLES 

Mr. CHARLES. Thank you, Chairman Hanna, Ranking Member 

Takai, and members of the Subcommittee. Thank you for this opportunity to testify on issues related to small business contracting 

and size standards. My name is Steve Charles, cofounder of the 

immixGroup, where for two decades I have worked to help information technology manufacturers succeed in the government marketplace. 

Since our founding in 1997, with my partner and I, immixGroup 

has grown into a recognized leader in the public sector IT marketplace representing more than 250 manufacturers as a distributor 

to more than 600 value added resellers, most of them small businesses. We are a top 10 IT 70 GSA multiple awards schedule contractor with IT product sales over $420 million in fiscal year 2014. 

On March 31, immixGroup was acquired by Arrow Electronics, a 

Fortune 200 company, so we are no longer small by any standard. 

And moving forward, as a public sector subsidiary of a global IT 

distributor, we do plan to continue our involvement in small business and product procurement issues on behalf of the hundreds of 

channel partners who source IT products from us. 

We believe it is critically important for the Federal Government 

to maintain small business size standards that accurately represent each industry sector and subsector and support efforts to ensure that SBA’s review of size standards and NAICS code updates 

are based on accurate, relevant data performed in a statutorily correct, transparent, and thorough manner. 

We also support an enforcement mechanism to formally challenge size standards through the SBA Office of Hearings and Appeals, such as that proposed in the Stronger Voice for Small Business Act of 2015 introduced by Representative Bost and cosponsored by our own Congressman, Representative Connolly. 

A key recommendation of immixGroup is for SBA to analyze Federal procurement data, in addition to census data, as part of the 

size standard review process. By way of example, we look at the 

SBA’s recent proposed size standards rule eliminating the IT-VAR 

exception, also known as Footnote 18 from NAICS Code 541519, 

which is entitled ‘‘Other Computer Services.’’ In its proposal, the 

SBA notes that the lack of data on characteristics of firms involved 

in IT-VAR activities to evaluate the current 150-employee size 

standard also justifies SBA’s proposal to eliminate the IT-VAR subindustry category. 

Indeed, immixGroup is not aware of any research conducted to 

justify this subindustry. We firmly believe that if a nonpartisan 

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independent review were conducted on orders placed pursuant to 

multiple award delivery order contracts set aside under the IT-VAR 

exemption, the research would clearly show how agencies’ use of 

this exception to limit competition for the purchase of products has 

been confusing and misguided, categorizing many billions of dollars, about $10 billion to $12 billion a year spent for products manufactured by large businesses as ‘‘Other Computer Services’’ under 

this NAICS code, while inhibiting the ability of otherwise qualified 

small contractors to compete for Federal IT product orders. 

The use of Footnote 18 in this way excludes a large segment of 

prospective small business contractors and violates a contracting 

officer’s obligation to designate a NAICS code that describes the 

principal nature of the product or service being acquired. 

According to current statutes, should a mix of products and services be required, the NAICS code chosen is supposed to represent 

the industry accounting for the largest percentage of the contract 

price. We believe that for the vast majority of the nearly 60,000 

contract actions per year conducted pursuant to 541519 this is not 

the case. 

For these reasons, immixGroup supports the SBA’s objective of 

striking the Footnote 18 exception. Our hope is that issues related 

to eliminating this exception can be resolved in a way that promotes clarity, consistency, and confidence in how socioeconomic policy is being implemented within the procurement system for the 

purchase of products. 

Related to SBA’s IT-VAR exception proposal, the SBA released 

another proposal clarifying COTS software and the use of the nonmanufacturer rule. We support these as well. Every day we see solicitations requesting a quote for items manufactured by a large 

business that are set aside for small businesses with no NMR waiver, creating a Catch-22. Meanwhile, all the dollars obligated count 

toward meeting the agency’s small business goals. 

We respectfully request that before Congress considers increasing the statutory government-wide small business prime contracting goals, it requests order level line item data to quantify the 

extent of this practice across all product industries. 

In conclusion, we thank the Subcommittee for considering these 

commonsense measures to ensure that SBA conduct size standard 

evaluations are based on relevant data in full compliance with the 

law. Thank you for this opportunity. 

Chairman HANNA. Thank you. 

Mr. Reim. 

STATEMENT OF RONALD REIM 

Mr. REIM. Chairman Hanna, Ranking Member Takai, and members of the Subcommittee, thank you for the opportunity to testify 

today on behalf of my firm and on behalf of the American Institute 

of Architects on the critical issues of SBA size standards. 

My name is Ronald Reim. I am an executive vice president and 

founding principal of Oculus, Inc., a full service architectural and 

strategic facility planning, interior design, and move management 

firm with offices in St. Louis and Dallas, Texas. In addition to serving these communities, we work with a number of Federal agencies 

and do projects all across the country. 

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My firm is grateful for the assistance that the SBA has provided. 

Our designation as a small architectural practice has helped our 

company bridge into more complex and interesting and meaningful 

projects, giving us an avenue to work on private sector work as 

well through gaining this experience. 

Our SBA designation also helped us keep our doors open during 

the recession. During that time, our firm was forced to severely cut 

staff as our private sector work dropped off precipitously. For the 

most critical 6-month period, we cut pay 20 percent for our senior 

people and laid off staff as a necessary survival tactic, but our Federal Government work provided an avenue for us to essentially 

keep our doors open, and the SBA designation truly helped in that. 

Dramatically increasing the size standards, as the SBA proposed 

in 2011, would create a ripple effect for us much like the recession, 

we think. It would just simply change the competitive nature of our 

industry, opening up the door to much larger competitors in our 

arena. The SBA proposed lumping together architecture and engineering firms into a single massive size standard that would have 

effectively defined 98 percent of the architectural practices as 

small. 

Substantially raising the size allowance would for all intents and 

purposes eliminate Oculus’ ability to compete for these Federal contracts for set-aside projects. It would reclassify mid- to large-size 

firms, essentially making David and Goliath the same. Yet competitively we are very different organizations and companies. 

The current size limitation provides opportunities for truly small 

businesses to have a legitimate shot at performing Federal work 

and opens the door for us to get in. And gaining access to restricted 

set-aside contracts is essential for us to essentially have a shot at 

it. This allows an emerging firm to gain experience with these 

types of projects in the government arena that allows us to build 

a portfolio that we then can compete on a more even keel with larger companies, and that is essential for us to be able to survive. You 

don’t get Federal projects unless you have that portfolio, and this 

is the way for us to build it. 

Had the proposed 2011 size standard been put into place, it is 

very likely that we would have decided it was just too difficult to 

even compete for Federal work and taken a different direction, cutting off a very vital avenue for us to gain those experiences. The 

SBA is required to review and adjust size standards only once 

every 5 years. Five years of being cut out of this type of work 

would be devastating to our firm. It is just we couldn’t survive that 

length of time. 

This is why it is essential that the SBA gets the size standards 

right. It is also why I am pleased that members of this Committee, 

led by Representatives Bost and Connolly, have introduced House 

1429, the Stronger Voice for Small Business Act. Giving us this avenue to be able to question and challenge these designations in a 

more cost-effective manner is absolutely essential as well. Litigation is just not really an option for a small company like mine. 

I am pleased that the House incorporated this bill into the defense bill, and I hope it can become law later this year. Related to 

the issue of size standards and how contractor payments are calculated in net revenue of an architecture firm, as much as 50 perSBREP-219 with DISTILLER

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cent of our revenue passes directly through our company as the 

team leaders on these contracts, so it is money that goes to us directly through to our subconsultants. We have very little, essentially, in that process at all to manage that. 

To suggest that a firm is not a small business merely because it 

handles the revenue of these other companies, however briefly, before using it to pay other firms is simply unfair. The SBA could 

easily address this issue by not counting that money passing 

through those firms or changing the standard through which how 

it designates small business. 

In conclusion, the SBA is an immensely valuable institution that 

has helped innumerable small businesses. The SBA’s vast reach, 

however, means that even minor changes to the rules and policies 

can have dramatic consequences for small businesses. Therefore, 

we ask that the SBA follow the letter and intent of the law and 

ensure that any size standard adjustments be made to reflect current market conditions. 

I would like to thank Chairman Hanna and Ranking Member 

Takai and the distinguished members of the Subcommittee. Thank 

you. 

Chairman HANNA. Thank you. 

Mr. Jordan. 

STATEMENT OF ROGER JORDAN 

Mr. JORDAN. Chairman Hanna, Ranking Member Takai, thank 

you for the opportunity to testify today. 

Prior to 2009, PSC was calling upon SBA to undertake a thorough analysis of the size standards, particularly for the 54, or the 

professional, scientific, and technical services sector in which many 

PSC member companies operate. We viewed this review as necessary because it had been years since SBA had last conducted a 

thorough review. 

SBA began such a review in 2009 by first developing a methodology to calculate size standards based on five factors, only one of 

which was focused on the Federal contracting marketplace. PSC 

commented on the methodology, which was finalized without substantive change. 

Subsequently, in March of 2011, SBA issued a proposed rule to 

revise size standards for 36 industries in the 54 sector. For most 

industries, the increase in the size standards were fairly substantial. For example, most size standards that had been established at 

$7 million in annual gross receipts were increased to either $10 

million or $14 million. That increase provided much-needed flexibility for small firms to mature while still having access to restricted competitions. However, for other industries, primarily for 

computer-related services, that size standard remained essentially 

stagnant. 

In our comments on the proposed rule, we raised several concerns, and our views remain unchanged. Our concern is that SBA 

is ignoring the fact that computer-related services has undergone 

and continues to undergo a significant change over the last 25 

years. The Federal Government is purchasing more of these services than at any time in history, and companies across industry are 

focusing on providing a comprehensive set of solutions to the FedSBREP-219 with DISTILLER

10 

eral Government that include a combination of telecommunications, 

information technology, and other solutions and services. Yet SBA 

proposed raising the size standards for those categories only by 

$500,000, from $25 million to $25.5 million. 

Additionally, SBA established a common size standard for a 

handful of IT-related industries, even though the industry data 

supported a distinct same size standard for some of those industries. For example, SBA’s own analysis shows that for computer facilities management services the calculated size standard was 

$35.5 million, but SBA still chose to retain the lower common size 

standard for this category. 

Therefore, by establishing the common size standard that incorporates this NAICS code and other computer-related NAICS codes 

at that common level of $25.5 million, SBA has eliminated legitimate small businesses from being able to qualify as such. PSC’s 

comments to SBA focused heavily on this point. 

However, in its 2012 final rule, SBA declined to adopt our recommendation that common size standards be avoided altogether or 

that they default to the higher threshold to avoid negatively impacting small businesses. To this Committee’s credit, you recognized that reliance on a common size standard could have a negative effect on small businesses, and in May of 2011 a hearing was 

held on the issue at which PSC provided testimony. 

Later, legislation was enacted via Section 1661 of the fiscal year 

2013 National Defense Authorization Act that requires SBA to justify the use of common size standards. Unfortunately, the NDAA 

language was enacted after the SBA final rule changing the size 

standards for the 54 sector was complete and no SBA justification 

has been provided. Thus, legitimate small businesses have been denied the ability to compete for set-aside contracts since the final 

rule went into effect. 

An additional effect is that companies have been denied the ability to increase their revenues while maintaining their small business size status. In the computer facilities management services industry, for example, firms that were close to exceeding the $25 million size standard in 2012 would have been able to grow their business to $35.5 million while still being afforded the benefits that 

come with being a small business Federal contractor. 

The added growth that the higher size standard would have provided to these companies could have eased their transition into the 

full and open competitive market. Instead, the result has likely 

been that businesses have either refrained from growth in order to 

maintain their small business status or they have had to transition 

exclusively into the full and open market much sooner that they 

would have had SBA actually followed its own methodology. 

We expect SBA to undertake a required review of the 54 sector 

within the next 2 years, and while SBA should not be allowed to 

ignore the law in the interim, we are disappointed that they have 

not proactively made necessary updates. We certainly look forward 

to SBA complying with Section 1661 at the time of the next review. 

PSC also reiterates its support for an SBA size standard methodology that gives more weight to the Federal marketplace dynamics 

or creating a completely separate set of size standards to be used 

for Federal procurement purposes only. 

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Lastly, it is important to recognize that 1661 is one of many 

small business contracting statutory provisions enacted since 2010. 

This Committee has been vigilant about holding SBA and the FAR 

Council accountable for implementing those provisions, and PSC 

shares the frustration expressed at the recent Subcommittee hearing about the length of time it has taken to complete implementation. 

As such, PSC supports efforts to move towards concurrent and 

collaborative SBA and FAR rulemaking to speed the implementation process. It is simply unacceptable that implementation of enacted small business provisions has taken 3 or more years to fully 

implement. 

Mr. Chairman, this concludes my testimony. Thank you again. 

Chairman HANNA. Thank you. 

I am going to yield the first question to Mr. Bost. 

Mr. BOST. Thank you, Mr. Chairman. 

Mr. Reim, I am going to just go right into it. I know that you 

have done work for Scott Air Force Base and Department of Veterans Affairs, but your business obviously works for other projects 

besides that. How is working on Federal projects different than in 

the private sector? 

Mr. REIM. In the private sector, we compete with large companies and small businesses. What is different about it is that the 

Federal work offers us the ability to team with large companies 

and gain parallel experience along with them. So prime contracts, 

for example, where we have large companies as our subconsultants 

give us expertise and allow us exposure to project types that we 

would never be selected for typically out in the private sector. 

Those would normally be primed by large firms and we might be 

the subconsultant to them. 

So, for example, our work with the VA has allowed us exposure 

to very high-level projects in a planning and oversight role that 

then has opened the doors for us with our private clients as well. 

So, for example, our work with the VA has opened up project opportunities for us with local healthcare provider BJC on larger, 

more complex projects. 

Mr. BOST. All right. Good. 

So in your type of business with architecture, what is the level 

of competition that is out there, and how many are small and how 

many of you are you going head to head with the larger companies? 

Mr. REIM. The vast majority of firms are small companies, but 

there is a big, extreme difference between firms providing architectural services that are independent architectural firms, like mine, 

and larger conglomerate firms that consist of a full array of product 

services and types, including construction and construction management, all disciplines of engineering, and there are essentially 

global companies doing it. 

We are a local company providing local jobs and keeping expertise in the local community, and that is really important. I think 

that if companies like ours weren’t allowed to essentially start and 

grow and use these types of tools to merge into or emerge as more 

mature companies, then there would be a separation of really big 

firms and really small firms not doing Federal work and really almost nothing in between. 

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Mr. BOST. Would you say that having the opportunity to compete 

on that level instead of everybody trying to go against the big dogs 

without any opportunity like this, beneficial for the taxpayer? 

Mr. REIM. Yes, absolutely. I think that our small firm cost structures for the government are lower than large firms. Our overhead 

structure is lower. So we afford a good value for the Federal Government in competing on those projects, as well as we are able to 

put teams together that tap into the expertise that some of these 

larger firms obviously have, given their size and the number and 

types of projects they work on, to provide the same level of knowledge back to the government and a quality level to the service. 

Mr. BOST. I have got one question for the whole panel, if I can. 

Have any of you actually had to go through the law suit process 

that, if the bill goes all the way through and passes, that you can 

go directly to the appeals process to the Small Business Administration? Have any of you had to go through the process right now 

of law suits for any changing of definition of a small business or 

not? 

Mr. JORDAN. No, sir. 

Mr. BOST. Okay. 

Mr. FONTANA. Congressman Bost, I have been involved with lawsuits under the APA, Administrative Procedure Act, challenging 

agency decisions. You can challenge designations of NAICS codes, 

but not the decision to change the size standard of a NAICS code. 

So this would be a very new process. 

Mr. BOST. Okay. 

Mr. FONTANA. But they are daunting and they are expensive lawsuits, like any Federal lawsuit. 

Mr. BOST. I have in my district right now a situation with a boot 

manufacturer that has been a small business and always been 

rated as small business, and a lot of the competitors are now arguing, and they are actually smaller than they were when they first 

got that standard. But I know they are going through that process 

right now. 

Thank you, Mr. Chairman. I yield back. 

Chairman HANNA. I yield to Ranking Member Takai. 

Mr. TAKAI. Thank you, Mr. Chairman. 

Mr. Jordan, in your testimony you discussed how SBA traditionally analyzes the five primary factors when making its size determination. You also discussed that the impact of government contracting should be given more weight. Why do you believe this is 

such an important factor? 

Mr. JORDAN. Well, the Federal Government marketplace is much 

different from the commercial marketplace. The services and the 

solutions that our member companies are providing are usually a 

lot bigger, a lot more complex, a lot more comprehensive. And so 

we often see larger contracts. We have a larger barriers to entry, 

some government-unique reporting and compliance requirements, 

for instance, that businesses of all size must comply with. So you 

have to be a little bit more savvy to enter the marketplace, which 

usually means you are a little bit bigger. 

And back to my point on the size of contracts, I mean, we continue to see some very large contracts being set aside for small 

businesses, and that is not necessarily a bad thing, but sometimes 

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the Federal agencies go a little bit too far. There is a great example 

within NGA that is moving right now that would set aside a contract under a size standard of $15 million, and it is a 5-year contract with a ceiling of $850 million and they want to make award 

to four to eight companies. 

So when you look at that and you do the math, it is somewhere in the neighborhood of $20 million to $40 million per year per company in terms of what they would need to perform under a size 

standard of $15 million. It just doesn’t make sense. 

Now, there are certainly other cases where contracts are structured in the right way, but I think it paints a picture of the requirements are often larger, more complex, and therefore you don’t 

get the kinds of one- or two-man small firms that are operating in 

the commercial space. 

Mr. TAKAI. Thank you. 

So we have seen agencies, and you mentioned one in particular, 

bundle contracts. I am assuming the one you just mentioned is a 

bundled contract. This, along with the predominance of multiple 

award contracts, has caused the overall value of contracts to increase significantly. Do you believe these developments have 

caused businesses to outgrow their size standards at a higher rate 

than if they won single award contracts? 

Mr. JORDAN. Absolutely. We are hearing that more and more frequently, that, again, because of the size of these contracts, you can 

win a single award and almost overnight eclipse your size standard. 

Now, that is not necessarily always a bad thing, but if it is a 5- 

year contract and you are dedicating all of your small business resources to performing on that contract, what happens when that 

contract comes to conclusion? One, you are no longer eligible to bid 

on the work if they set it aside as a small business, and so you are 

going to lose that work when a competition comes around, and if 

you haven’t built up your overall capacity, then you are going to 

see a precipitous drop in your revenue, and that is going to be a 

real business challenge. 

Mr. TAKAI. So what would the size standards be for these types 

of situations as a result of these trends? 

Mr. JORDAN. Well, it is hard to say. I mean, I continue to believe 

that each and every NAICS code needs to be assessed on an individual basis. And SBA has developed a methodology, it is fairly 

complex, and without getting into the nuances of that, I think that 

what they ought to be doing is applying that methodology consistently to all the NAICS codes and avoiding a reliance on common 

size standards where the individual NAICS codes that are included 

under that common size standard would be different. Why do we 

want to penalize any small business? It just doesn’t make any 

sense. Just for the sake of efficiency for whom? Efficiency for SBA’s 

process of establishing the size standards? 

Mr. TAKAI. All right. So during the initial review of your organization’s size standards, PSC requested additional information from 

the SBA to better inform comments you submitted. The NDAA provisions discussed here today were meant to better inform the public 

about how SBA arrived at their proposed size standards so that all 

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tion have on the size standards process, as well as industry’s ability to participate in the comment processing? You have got about 

30 seconds to answer that one. 

Mr. JORDAN. I think basically, sir, it comes down to transparency, and that just by requiring the SBA to submit a justification for why they have bundled NAICS codes together under a common size standard can help industry understand their approach, 

but also where we think that that approach is misguided, it gives 

us a little bit more information to push back on. 

Mr. TAKAI. All right. Thank you. 

I yield back. 

Chairman HANNA. Thank you. 

It would be nice if the SBA was here to also participate in this, 

but they are not. 

The expectation is that H.R. 1429 will somehow settle some of 

this. With all the different NAICS codes and size standards and 

the proposal for more size standards, is the work, Mr. Fontana— 

or anybody—so subjective as to never be able to get it right, which 

in my mind would make the appeal process that more critical? And 

how do you view the appeal process in terms of resolution? 

I mean, it is nice to be able to go to court, it is nice to have some 

kind of arbitration, but at the end of the day you want a resolution 

in a timely fashion that allows architectural firms and IT firms to 

have a fair shot in their own sectors. What would you like it to look 

like? What is your expectation, Mr. Fontana? 

Mr. FONTANA. You mean of the appeal process? 

Chairman HANNA. Yeah. 

Mr. FONTANA. I think as the bill, as written, it is as near as you 

can get in terms of what that due process would be. You would be 

able to challenge it before the SBA, go before the SBA’s Office of 

Hearings and Appeals, which is a fairly simple—compared to litigation—it is a fairly simple process. It would be like a small business 

size protest or a status protest. Their paper exchange is usually 

one each, it might be several others. 

So it is a fairly simple process. And then after that you would 

have judicial review of that process if the parties so desire. So it 

does introduce a much less expensive process that small companies 

would be able to afford relatively. 

Chairman HANNA. But are there teeth within that that you 

would like to see? I mean, it is one thing to win your own appeal. 

It is quite another matter to have the kind of broad change that 

you are appealing because what you are really saying is that this 

industry, this sector is not being treated fairly broadly, or you 

might not be there in the first place. Do you agree with that? 

Mr. FONTANA. I agree with that in the sense that this is a fairly 

narrowly tailored bill. It has to do with the creation or revision of 

a size standard. So it is narrow in that respect. There is no other 

forum, other than going through the SBA comment period, as many 

have done, out of 170 there was overwhelming opposition to elimination of Note 18, or going to court. We took it a step further. We 

are having continuing dialogue with the SBA on this issue prior to 

their finalization of some rule. 

But to answer your first question on the subjectivity, does the 

SBA never get it right under these circumstances, I can cynical and 

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15 

say, yes, they never get it right. In this case, they just did not. 

They didn’t follow the law, they didn’t follow the Jobs Act, they 

didn’t follow NDAA 2013. They got all the data wrong. The SBA 

said it would be a 1 percent impact. We are showing much, much 

more of that. 

So having this type of mechanism, and I would doubt that this 

mechanism would be in place by the time the rule is finalized, but 

having this mechanism would allow these companies to challenge 

SBA in this case simply not following the law. 

Chairman HANNA. Mr. Charles, would you like to respond? 

Mr. CHARLES. Well, I too wonder what the effect of an appeal decision would be. Would SBA actually change course and modify the 

size standard of a particular NAICS code? I don’t know. I am not 

familiar enough with the bill and the downstream implications. 

I would like to add the perspective that I would hope that we 

could look at Federal procurement data in these discussions in addition to census data. We are looking at census data in terms of 

size of companies, and some of the other witnesses here have alluded to this point, that the Federal marketplace is a little different. And to my knowledge, SBA is not analyzing Federal procurement data at the NAICS code level, and further, is not analyzing procurement data down at the line item level in these orders, which would bring us a whole lot of information about whether or not Footnote 18 comports with other statutes. 

Chairman HANNA. Thank you. 

Mr. Reim, you mentioned almost in passing, and I have got about 

30 seconds, that you see they are driving social and economic policy. What did you mean by that? 

Mr. REIM. You know, if these codes change or the amounts, the 

limits, change dramatically, we would see the landscape for competition change dramatically, and it would often restrict small businesses from being able to gain an entree into that. And it is pretty 

much making a decision then that if you are not going to contract 

or not able to contract with the Federal Government, that you are 

locked out of that element of business. 

Chairman HANNA. All right. Thank you very much. 

I yield to Ms. Clarke. 

Ms. CLARKE. I thank the chairman and ranking member. I also 

thank our witnesses here today. 

Establishing up-to-date and pragmatic small business size standard methodologies is important for the entire small business sector. 

This is the determining factor behind many SBA assistance programs, such as capital access and technical assistance. And while 

I understand that the SBA faces a cumbersome task in constantly 

updating size standards to keep current with industry growth and 

inflation, I appreciate the concerns that you have put forth here 

today. 

I want to ask if you could just drill down a little bit more on the 

bundling of the NAICS codes, because I think that there may be 

where some realignment and perhaps the remedy may exist. Mr. 

Jordan, you spoke about that, but I would like to hear from the 

panel. Thank you. 

Mr. JORDAN. Sure. I will start. 

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So SBA is driving towards what they say is streamlining the size 

standard process, and so they want to, in my view, limit the number of different size standards that are out there. And again, to my 

point earlier, that makes little sense when you consider the variation and the dynamics of the vast number of industries that are 

comprised within the NAICS code structure. 

And so to me it is almost as if each industry should be assessed 

on its own merits, and whatever that size standard, based on that, 

the SBA’s own calculation comes out to be, that is really where 

they ought to focus. And again the example that I used in my oral 

statement was around the computer-related facilities where by 

SBA’s own calculation they determined that the size standards for 

that NAICS code was $35.5 million, yet they chose to go with a size 

standard that was $10 million lower. 

And so that meant that any companies that were in between that 

delta, essentially, by SBA’s own definition, were small, but would 

be considered to be other than small, they would be ineligible to 

compete for small business set-asides. And to me, I think that is 

a fundamental flaw. 

Ms. CLARKE. So let me ask, do you think there is realignment required or do you think that there needs to be a decoupling or 

debundling, if you will, and a breakdown of industry? Because I am 

just trying to think about capacity of SBA to do that level of assessment when you can be talking about hundreds of industries. 

Mr. JORDAN. Well, let me be clear. I think that there certainly 

are circumstances in which creating a common size standard 

makes sense. For example, if you have a group of industries where 

the capabilities or the functions are essentially similar or there is 

a lot of overlap and the individual size standard determination determined by the methodology that SBA uses comes out and it is relatively the same, then by all means go ahead and use a common 

size standard, provide the justification, and I don’t think you will 

get a lot of opposition from industry. But when you have a significant variation in those individual NAICS codes, then it doesn’t 

make sense to bundle them. 

So I think it is, to answer your question, a mix of both. In some 

cases, yes, it is fine, but in others it doesn’t make sense. 

Ms. CLARKE. Okay. Let me ask if you can please elaborate on 

suggestions that you have to improve the current size standard 

methodologies that affect your sectors. 

Mr. JORDAN. I will start by again focusing on the Federal contracting marketplace. Again, it is very different, but it is only one 

of the five significant factors that the SBA uses to calculate size 

standards today. And there are factors like the impact on the SBA 

loan programs that they factor in, and I think that factor has a 

very minor impact. I mean, the companies that are operating in the 

Federal space are not necessarily the same companies that are 

seeking to access capital through the SBA loan program. 

So to the extent that they are artificially keeping those size 

standards lower so they don’t have a dramatic impact on loan programs doesn’t make a whole lot of sense when you are looking at 

size standards through the Federal contracting lens. 

Ms. CLARKE. Gotcha. 

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Mr. FONTANA. I will just add, I agree with Mr. Jordan’s analysis 

on this. It is very simple. With this particular subindustry on ITVARs or with any industry, the idea is for the SBA to understand 

the business, understand that industry or subindustry, use reasonable methodology, look at the market and the competitive impact 

data, which the law requires to make that reasonable decision, and 

that is it, but the SBA is not doing that here. 

Ms. CLARKE. Thank you, gentlemen. 

I yield back, Mr. Chairman. 

Chairman HANNA. Ms. Chu. 

Ms. CHU. Yes. I would like to address this to Mr. Reim. Last 

Congress I hosted a roundtable and heard from the architects in 

my district about the effect that size standards have had on their 

businesses, and they reported that the average size of architectural 

firms is less than 15 people, but the current size that the SBA has 

for architectural services is $7.5 million, which they found to be 

very, very high. They were extremely concerned about the potential 

changes to the size standards and being forced to compete with 

larger firms that are not actually small. 

From your perspective, is the current size standard for the architects, for your industry, is it too high? 

Mr. REIM. I don’t believe that it is. I think that when it was 

much smaller we actually for a time grew out of the size standard. 

I believe back the last standard was at $4.5 million. We actually 

grew out of it. 

In the current size standard, we might face that in a year or 2 

as our company continues to recover from the recession and grow. 

But I think that if it goes up much higher than the $7.5 million 

that it changes the playing field rather substantially, especially if 

it goes up to the newly proposed amount. 

And even if it were to be raised, I think that one of the things 

is the speed at which it is changing. If it were to change from $7.5 

million to the $19 million abruptly, then suddenly the landscape 

looks instantly overnight very different. If we were all told that it 

is going to migrate to a different number, that would be a much 

more acceptable transition to us. 

But still, there is such wide variety in architectural firms, from 

large to small, and there are so many firms that are small, that 

the smaller, ours and down, I would say, would have a very difficult time gaining entry into that market, gaining the portfolio and 

experience they need to compete and to have the actual credentials 

to do the projects in that market if the standard goes up substantially. 

Ms. CHU. What is the best indicator for an architectural firm size 

standard? 

Mr. REIM. You know, again, because when I testified about the 

amount of pass-through revenue, we think that actually a better 

size standard would be the number of employees or a more accurate accounting of how much money is retained by the firm in 

terms of direct labor cost. We think that would be a much more accurate standard at least for our NAICS code. 

Ms. CHU. And then there is this proposal to combine the architecture and engineering industries together under one standard. 

SBREP-219 with DISTILLER

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And I wonder what you think about this and how does this impact 

the ability of truly small businesses to win government contracts? 

Mr. REIM. Well, we don’t think that lumping the two, while we 

are similar at businesses, we don’t think that we are aligned in the 

same way the engineering firms are. We think that engineering is 

truly a different type of practice. Much more of the revenue that 

goes to engineering firms, we often see, stays with those engineering firms. Almost 50 percent of our revenue passes through our 

firm and goes to engineering firms. So for that reason we think 

that categorizing us both together would be a big mistake. 

Ms. CHU. And just for the panel, we have heard from witnesses 

that certain size standards are either too high or other size standards are too unrealistically low. How do we find the balance between allowing those slightly larger firms to compete for contracts 

while protecting the ability of smaller businesses to gain access to 

the market? 

Mr. CHARLES. I think one of the ways is actually to—I heard the 

idea earlier, Mr. Jordan proposed it—the idea of having different 

size standards for procurement, restricting competition, as opposed 

to SBA assistance. I think there is real validity in looking at that, 

and I believe that the Federal Procurement Data Systems data 

would inform what the size standard should be, separating the 

dominant from the nondominant, in this particular market. 

Mr. JORDAN. I would just add to that. The key phrase there: Separating the dominant from the nondominant. And right now, when 

I look at where we are with computer-related size standards, there 

are clearly nondominant firms that would not be included in the 

definition of a small business today. 

And I am not suggesting that our size standards should be raised 

by tens of thousands, tens of millions of dollars. We have this ongoing debate even within our own companies about what a midsize 

firm is, and it ranges from anywhere from $25.5 million and above 

to up to a billion. And it really comes down to where you sit is 

where you stand in terms of your position on size standards. 

So I think it is a big, big challenge, but certainly one that needs 

to be explored further. And I think that, again, by focusing more 

on what the Federal contracting market looks like, you can begin 

to get a better sense of what a small business contractor should 

look like. 

Mr. FONTANA. I think it is market driven and it is industry and 

subindustry driven as well. I agree that using FPDS and other 

sources to look at that and understand that subindustry is very important; doesn’t make it any less challenging or any less daunting. 

But looking at the business side of it to see what are the business models, the organizational models of the companies in that industry or subindustry are important, because that, along with looking at the available data, or any other data that could be obtained, 

would give a good indication of what the size standard should be, 

whether it should be employee based, revenue based, or a combination of both. 

Ms. CHU. Thank you. I yield back. 

Chairman HANNA. Thank you. 

Mrs. Lawrence. 

Mrs. LAWRENCE. Thank you. 

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Thank you, gentlemen, for being here today. 

Michigan has over 850,000 small businesses, so it goes without 

saying that small businesses are the backbone of our economy, 

making that much more important that we succeed. 

Mr. Fontana, let’s say a small business owner in Detroit wants 

to challenge an established or revised size standard by SBA. It is 

my understanding that the only avenue for the small business 

owner is to file a Federal lawsuit against the government. Is that 

correct? 

Mr. FONTANA. Yes, ma’am, that is correct. That is as opposed to 

a particular NAICS designation on an individual procurement. But 

that is correct, they would have to go to Federal court. 

Mrs. LAWRENCE. I want for the record, please, if you could explain the time line and the costs associated with a small business 

owner trying to make this appeal. 

Mr. FONTANA. Or any business owner. And don’t hold me to the 

numbers, because each case is always different. 

In mounting an APA, Administrative Procedure Act, claim 

against the government, it would have to be filed in Federal district court, and I will just dispense with really the court fees and 

other related costs. That can be anywhere from, if it is very short 

where you get it to a summary judgment stage or you get it to a 

higher stage where there are more briefs or more motions and 

more delays, it can be anywhere from $50,000 to $100,000 or more. 

Typically, they are not jury issues unless there are disputed 

facts, and typically here that is not the case. But it is still, for 

small businesses, a very, very expensive proposition. 

Some small businesses in the VARC that I represent, 13 companies, they have pooled resources in some cases, but it is a little less 

common that their interests will be totally aligned in that kind of 

challenge. So they would be more apt to do individual lawsuits, and 

then each small business would have to pay that individual expense. 

Mrs. LAWRENCE. What is the time line? 

Mr. FONTANA. The time line for something like this, it is usually 

several months. It could be up to or over a year, depending on the 

court docket, depending on the amount of evidence, or depending 

on the amount of hearings that would be held. And discovery is another big issue where I call it the long pole in the tent in litigation. 

Discovery itself could take a year or more. 

Mrs. LAWRENCE. So your recommendation to fix this would be? 

Mr. FONTANA. Well, the Stronger Voice Act is a good start. For 

one, allowing small businesses like in size and status protests, to 

use that administrative forum and that administrative remedy, 

still have the availability of judicial review as this bill has. But allowing that to go before the SBA and the SBA Office of Hearings 

and Appeals is a start. 

Another avenue, and it is the other way to look at it, as the Subcommittee is, is to counsel the SBA or compel the SBA through legislation to follow the standards that this Congress has mandated. 

Mrs. LAWRENCE. Thank you. 

Mrs. LAWRENCE. Mr. Charles, I have a few minutes. I want to 

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neers in comparison to anywhere else in the world, so we have a 

lot of technology companies and startups. 

How would this proposed new rule have an impact on technology 

manufacturing or the technology service providers? Do you have a 

sense of the impact it would have? And I am concerned about that 

because in Michigan that is one of our driving economies. 

Mr. CHARLES. So are we talking about the proposal to eliminate 

Footnote 18? Is that the rule we are talking about? 

Mrs. LAWRENCE. We are talking about the ability for these entrepreneur startup incubators to provide opportunities for small businesses going there. Will that impact it, the legislation that you are 

speaking of? 

Mr. CHARLES. I am sorry. I am not familiar with the rule you are 

referring to. 

Mrs. LAWRENCE. Okay. The new law, the new rule that we are 

proposing to correct or make sure that the SBA is in compliance, 

will that have an impact on startups? 

Mr. CHARLES. So we are talking about the Stronger Voice? 

Mrs. LAWRENCE. Yes. Yes. 

Mr. CHARLES. Okay. So I believe it is really important for truly 

small businesses to make sure that the government understands 

what they do, how their business works within the NAICS code 

structure, and that the government customers are requesting the 

proper NAICS code for what it is they expect to be happening 

under the contemplated contract action. 

I believe I am very much in support of the Stronger Voice Act. 

My concern, generally, about new technology companies is that the 

NAICS code structure itself is perpetually a decade old. And that 

is the root of the problem, in my opinion. 

Mrs. LAWRENCE. That is where I was trying to go. Thank you. 

Chairman HANNA. Thank you. 

If the Committee doesn’t mind, we can open this up to another 

round or anybody who wants to ask a second question can. Does 

anyone mind if I do? 

Mr. TAKAI. No, Mr. Chairman. 

Chairman HANNA. Okay. Thank you. 

You have all been through the process with the SBA. How receptive are they without going through hell? 

Mr. FONTANA. Of course, you would have to describe hell in this. 

Chairman HANNA. Sure. 

Mr. FONTANA. It varies. I have dealt with the SBA on more than 

several occasions, and I have had the privilege to deal with a number of Federal agencies over 30 years of being in this practice. 

There are times that the SBA is very accommodating. After the 

comment period ended for this rule, they did entertain a meeting 

with representatives of the VARC, the small IT-VARS that we represent. Now, it took quite a bit to get them in a room, but they did. 

I have had conversations with their general counsel’s office on this. 

And so it is not that they have not been willing to discuss. The 

issue is, are they willing to listen? And that is the key issue, are 

they willing to listen to the realities of this particular subindustry 

and understand that they have to use and analyze the correct data 

in making these rulemakings relative to size standards? If that is 

the case, they are not. 

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Chairman HANNA. Does that mirror your experience, Mr. 

Charles, Mr. Reim? 

Mr. CHARLES. I have had good relationships with SBA. They take 

meetings and are happy to discuss things. I find that they often are 

not familiar with the downstream consequences of their rulemaking, and it is why I continue to repeat my interest in having 

more thorough analysis of procurement data at the line-item level 

be part of this process, because when I bring these things up, they 

are not knowledgeable. 

Chairman HANNA. Mr. Reim? 

Mr. REIM. I would concur. The subject of our increase, for example, and our NAICS code growing has been proposed several times, 

and it doesn’t seem to reflect the reality of our business. So I wonder if they have really dug into it and tried to understand it sometimes. 

Mr. JORDAN. I would agree with Mr. Fontana. They have been 

open to sitting down and having a dialogue, but I haven’t seen 

them be willing to make a whole lot of changes. Their methodology 

is what it is. I don’t see them going back and reviewing that and 

making changes to it, and I don’t think they are paying a whole 

lot of attention to the Federal contracting dynamics. 

So when we raised those concerns, we raised them both in our 

comments to the methodology, we raised those concerns when we 

commented on the proposed rules. And even though they were willing to come down and sit and talk with us, it feels like our comments fell on deaf ears. 

Chairman HANNA. So it is atrophy and a war of attrition, perhaps. 

The interesting thing, Mr. Reim, is that in your business you 

would like to have the size standard smaller. Ninety-five percent 

of all architects fit under the standard that is existing, $7.5 million. 

And in your case, Mr. Charles and other people, it is kind of the 

opposite. The relationship between revenue and employee is completely different. So you need to have a different standard. 

I want to thank everybody. 

Anybody else would like to ask another question? 

Mrs. LAWRENCE. No. 

Mr. TAKAI. No. 

Chairman HANNA. We are pushing up against votes any second 

here, so if there are no further questions for these witnesses, I 

want to thank all of you for your testimony. Getting the size standards right is one of the most important jobs the SBA has, and it 

is shameful that they are not faithfully executing the laws. 

I want to thank you, Mr. Bost, for your legislation, 1429, which 

would at least provide a check for the SBA and an opportunity to 

appeal. 

This issue is important to this Subcommittee, and we will continue to monitor it. 

I ask unanimous consent that members have 5 legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. 

Chairman HANNA. This hearing is now adjourned. Thank you all. 

[Whereupon, at 11:12 a.m., the Subcommittee was adjourned.] 

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Chairman Hanna, Ranking Member Takai, and members of the 

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

My name is Roger Jordan and I am the vice president of government relations at the Professional Services Council. PSC is the national trade association of the government professional services and 

technology industry. PSC’s nearly 400 member companies represent small, medium, and large businesses that provide federal 

agencies with services of all kinds, including information technology, engineering, logistics, cybersecurity, facilities management, 

operations and maintenance, consulting, international development, scientific, social, environmental services, and more. Roughly 

20 percent of our members are small businesses and another approximately 30 percent would be considered small mid-tier firms. 

Together, the association’s members employ hundreds of thousands 

of Americans in all 50 states. 

The Importance of Size Standards 

Small business size standards and the associated North American Industry Classification Systems (NAICS) play an often overlooked, yet significant role in the federal contracting marketplace. 

Whether a specific industry’s size standard is employee-based or 

revenue-based, the methodology used by the Small Business Administration and the resultant size standard impacts competitiveness throughout the marketplace, including contracts that are set 

aside for small business competition and prime contractors’ subcontractor utilization plans and implementation. For companies 

throughout the supply chain, size status carries significant weight 

not only because of the benefits offered by small business size status but also because of the potential penalties associated with misrepresentation of size status. Hence, there is broad interest whenever the SBA undertakes a review of, or revision to, an industry 

size standard. 

Such interest and impact is amplified by the binary nature of the 

size standards: companies are either small business or ‘‘other-thansmall.’’ This binary approach means that once a company exceeds 

its industry size standard, even if only by one dollar or one employee, they are left on their own to compete in the full and open 

marketplace. Some will succeed, others will not. In short, since 

SBA’s decisions can have transformational impacts on individual 

companies, the importance of accuracy and consistency in conducting size standard reviews cannot be overstated. 

At PSC, we believe the philosophy of the overall small business 

program should be to facilitate long-term growth of companies with 

entrepreneurial spirit through awards to and performance of federal government contracts. We believe this philosophy is shared by 

the current SBA leadership. However, it is not always evident in 

policy or practice. 

The statutory definition of a small business is designed to include firms that are not dominant in their primary field. But 

achieving an appropriate balance that allows companies with revenues or employees at the lower end of the size standard to break 

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1PSC comments on the SBA Size Standard Methodology are available at http:// 

www.pscouncil.org/PolicyIssues/SmallBusiness/SizeStandardsSetAsides/Comments—on—Other—Se.aspx. 

into the market while also protecting the ability of companies that 

are larger, but by no means ‘‘dominant’’ in their field, to compete 

for set-aside opportunities is not a simple endeavor. At the time 

SBA initiated its review of the size standards, PSC’s position was, 

and remains, in support of size standards that lean toward the 

higher range. SBA must seek to balance size standards so that all 

small businesses have legitimate opportunities to compete, yet 

higher revenue generating small firms are not shut out from competing for small business set-asides. PSC’s position has been and 

continues to be that federal government policies should foster robust competition for federal contracts whether set-aside for small 

businesses or not. As such, we have not endorsed legislative proposals to create new set-aside programs, particularly for emerging 

or very small businesses. 

Prior to 2009, it had been nearly 30 years since a comprehensive 

revision to industry size standards was conducted, and PSC was 

calling upon SBA to undertake a thorough analysis of the size 

standards, particularly for the ‘‘54’’ or ‘‘Professional, Scientific, or 

Technical Services’’ sector in which many PSC member companies 

operate. Examples of industries that fall under sector ‘‘54’’ include 

legal services, tax preparation services, architectural and engineering services, many computer related and information technology 

services, and a number of consulting services, including management consulting, logistics consulting, scientific and technical consulting. 

Hence, PSC was pleased that SBA began a comprehensive review 

of the size standards in 2009. SBA began its process of revising the 

size standards by developing a methodology based on five significant factors: average firm size; startup costs and entry barriers; industry competition; distribution of firms by size; and impact on federal contracting and SBA loan programs. SBA also considered other 

factors such as technological changes and industry growth changes. 

In addition, SBA established their discretion to use ‘‘common size 

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

of the same businesses operate in multiple industries, and might 

also make size standards among related industries more consistent 

than establishing separate size standards for each of those industries. 

PSC Concerns with the SBA Approach 

In December 2009, PSC submitted comments to SBA on their 

proposed methodology. SBA finalized this methodology in 2010 but 

did not accept any of our recommendations.1

Subsequently, in March 2011, SBA issued a proposed rule to revise the size standards for 36 industries in the ‘‘54’’ category. In 

total, federal spending on contracts in this category represents over 

$100 billion, or 20–25 percent, of the government’s annual spending on contracts. 

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2PSC comments available at http://www.pscouncil.org/PolicyIssues/SmallBusiness/ 

SizeStandardsSetAsides/Comments—on—SBA—Prop.aspx. 3The size standard for computer-related NAICS codes is currently set at $27.5 million because 

SBA has made inflationary changes over the past several years. 

While PSC recognized the difficulty SBA faced in collecting and 

digesting significant amounts of data about the commercial and 

federal marketplaces, we raised a number of concerns with the 

SBA proposed rule.2

On February 10, 2012 SBA published a final rule regarding the 

‘‘54 category’’ that increased size standards for 34 specific industries. For most industries, the increases to the size standards were 

fairly substantial. For example, most size standards that had been 

established at $7 million in annual gross receipts were increased 

to either $10 million or $14 million. That increase provided muchneeded flexibility for small firms to mature while still having access to restricted competition. In our comments on this proposed 

rule, we raised concerns about proposals for computer-related services that we believed required greater scrutiny, and our views remains unchanged. 

Our concern is that SBA is ignoring the fact that computer-related services has undergone, and continues to undergo, significant 

changes over the last 25 years. The federal government is purchasing more of these services than at any time in its history and 

companies across the industry are focusing on providing a comprehensive set of solutions and offerings to the federal government 

that include a combination of telecommunications, information 

technology and other solutions and services. Yet, in 2011, the SBA 

proposed raising size standards for those categories by only 

$500,000, from $25 million to $25.5 million. The $25.5 million size 

standard remained unchanged in SBA’s final rule.3

Common Size Standards 

Additionally, SBA established a common size standard for the 

Computer Systems Design and Related Services industries (NAICS 

541511, NAICS 541112, NAICS 541513, NAICS 541519 and NAICS 

811212), even though the industry data supported a distinct size 

standard for each industry. The common size standard proposed by 

SBA for these categories was also $25.5 million. However, SBA’s 

own analysis shows that for NAICS 541513—Computer Facilities 

Management Services—the calculated industry-specific size standard is $35.5 million. Therefore, by establishing a common size 

standard that incorporates this NAICS category and other computer related categories at a common level of $25.5 million, SBA 

has eliminated legitimate small businesses from being able to qualify. PSC’s comments to SBA focused heavily on this point. However, SBA declined to adopt our recommendations that ‘‘common 

size standards’’ be avoided and instead retained a size standard of 

$25.5 million for all computer-related NAICS codes. 

To this committee’s credit, you recognized that the reliance on 

‘‘common’’ size standards could have a negative effect on small 

businesses, and in May 2011 the Subcommittee on Economic 

Growth, Access to Capital, and Tax held a hearing on the issue at 

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which PSC provided testimony. Soon after, legislation was introduced by Representatives Joe Walsh and Gerry Connolly to restrict 

SBA’s practice of relying on common size standards. The legislative 

proposal was ultimately adopted in Section 1661 of the fiscal year 

2013 National Defense Authorization Act (NDAA). Unfortunately, 

the NDAA language was enacted after the SBA final rule changing 

the size standards for the ‘‘54 category’’ was complete and SBA has 

yet to take any action to address the reliance on common size 

standards in this category. 

Thus, legitimate small businesses have been denied the ability to 

compete for set-aside contracts since the final rule went into effect 

in March 2012. An additional effect, and one that is being felt by 

a broader number of companies, is that companies have been denied the ability to increase their revenues while maintaining their 

small business size status. In the Computer Facilities Management 

Services category, for example, firms that were close to exceeding 

the $25 million small business size standard in 2012 would have 

been able to grow their business to $35.5 million while still being 

afforded the benefits that come with being a small business federal 

contractor. The added growth that the higher size standard would 

have provided to these companies could have eased their transition 

into the full and open competitive federal market. Instead, the result has likely been that businesses have either refrained from 

growth in order to maintain their small business status or they 

have had a tougher transition from their small business status because they are entering the full and open market much sooner than 

they would have if SBA had designated the appropriate size standard that their own methodology established. 

Currently, SBA is required to update the individual size standards at least every five years. Although PSC believes rapidly evolving industries such as information technology and complex professional service should be reviewed more frequently, we understand 

the broad scope of SBA’s responsibility to review all the size standards. We expect SBA to initiate and potentially complete a fresh review of the ‘‘54 category’’ within the next two years, and while SBA 

should not be allowed to ignore the law in the interim, we certainly 

look forward to SBA complying with Section 1661 of the fiscal year 

2013 NDAA at that time. 

Other Considerations 

As mentioned above, SBA evaluated five major factors to determine the proposed size standards: average firm size; startup costs 

and entry barriers; industry competition; distribution of firms by 

size; and impact on federal contracting and SBA loan programs. 

SBA determined that each factor would be given equal weight in 

its calculations. However, PSC continues to recommend that greater weight be given to the ‘‘impact on federal contracting’’ factor. In 

addition, SBA should broaden its evaluation of the federal contracting market to examine if typical contract requirements under 

a specific category tend to gravitate toward larger contracts. If so, 

SBA might determine that a higher size standard is warranted. If 

typical requirements under a specific category seem better suited 

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to small contract awards, then perhaps a lower size standard would 

be more appropriate. 

PSC further encourages SBA to reconsider the merits of adopting 

separate size standards for 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. SBA 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 skillsets required by federal contracts compared 

with typical commercial contracting work, and the size of specific 

contracting requirements of federal customers. Such a structure 

would allow SBA to focus more on the market dynamics regarding 

federal contracting and in turn make the size standards more reflective of the realities of the marketplace they so significantly impact. 

PSC also recommends regular review of the NAICS codes themselves to ensure that they are properly aligned with the everchanging dynamics within specific industries. Within the information technology space, for example, the emergence of new and much 

needed capabilities such as cybersecurity and cloud computing are 

significant. Yet these capabilities or offerings are lumped together 

with other computer-related industries under a limited number of 

computer-related NAICS codes, which does not reflect how industry 

is organized or how federal agencies acquire these goods and services. This recommendation is not intended to suggest that each new 

capability is deserving of its own NAICS code. Instead, it is merely 

intended to require regular review of the NAICS codes to ensure 

that, as industries evolve at an increasing pace, the NAICS codes 

are still appropriately structured. 

Lastly, it is important to recognize that Section 1661 of the fiscal 

year 2013 NDAA is one of many small business contracting statutory provisions enacted since 2010. This subcommittee has been 

vigilant about holding SBA and the FAR Council accountable for 

implementing those provisions and PSC shares the frustration expressed at the recent subcommittee hearing about the length of 

time it has taken to complete implementation. As such, PSC supports efforts to move toward concurrent and collaborative SBA and 

FAR rulemaking to speed the implementation process. The need to 

implement these laws quickly is underscored by the fact that this 

year’s House-passed NDAA also contains a number of small business provisions. It is simply unacceptable that implementation of 

those provisions, if enacted, and other previously enacted reforms, 

will take three or more years before they will be used in the federal 

contracting marketplace. 

Conclusion 

PSC commends the Congressional action over the past several 

years to improve the size standard determination process. The enactment of Section 1661 is an important element of those reforms, 

and although it was enacted after work on the ‘‘54 category’’ of 

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NAICS codes was last revised, we look forward to SBA complying 

with the law promptly and certainly no later than their next substantive review of the Professional, Scientific and Technology Services sector. PSC also reiterates its support for an SBA size standard methodology that gives more weight to federal marketplace dynamics and creating a completely separate set of size standards to 

be used for federal procurement purposes only. 

Mr. Chairman, this concludes my testimony. Again, thank you 

for inviting PSC to testify today and for your attention to this important issue. I would be happy to answer any questions. 

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