[Senate Report 115-431]
[From the U.S. Government Publishing Office]
Calendar No. 636
115th Congress } { Report
SENATE
2d Session } { 115-431
======================================================================
SMALL BUSINESS RUNWAY EXTENSION ACT OF 2018
_______
December 11, 2018.--Ordered to be printed
_______
Mr. Risch, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 3562]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill (S. 3562) to amend the Small
Business Act to modify the method for prescribing size
standards for business concerns, having considered the same,
reports favorably thereon without amendment and recommends that
the bill do pass.
I. INTRODUCTION
S. 3562, the Small Business Runway Extension Act, was
introduced by the Committee's Ranking Member, Benjamin L.
Cardin, for himself on October 9, 2018. The bill would amend
the Small Business Act to modify the method for prescribing
size standards, using the preceding five years of annual
average gross receipts, rather than three, to determine a
business's size. The bill was approved unanimously in a roll
call vote as part of a manager's package.
II. HISTORY (PURPOSE & NEED FOR LEGISLATION)
The Small Business Act of 1953 (P.L. 83-163), as amended,
authorized the Small Business Administration (SBA) to establish
size standards for determining eligibility for federal small
business assistance.\1\ SBA has primarily measured the number
of employees and the average annual receipts in the previous
three years to determine a business's eligibility.\2\ These
size standards vary from industry to industry to account for
differences in the marketplace.
---------------------------------------------------------------------------
\1\15 U.S.C. Sec. 631.
\2\Small Business Size Standards: Revised Size Methodology, 83 Fed.
Reg. 81 (April 26, 2018). Federal Register: The Daily Journal of the
United States. Code of Federal Regulations, https://
www.federalregister.gov/d/2018-08418.
---------------------------------------------------------------------------
The SBA size standards represent the largest size that a
business (including its subsidiaries and affiliates) may be to
remain classified as a small business concern.\3\ This
classification is then used to determine eligibility for SBA's
financial assistance and other federal programs, including
government procurement programs designed to assist small
businesses.
---------------------------------------------------------------------------
\3\Small Business Administration, https://www.sba.gov/partners/
contracting-officials/small-business-procurement/small-business-size-
standards.
---------------------------------------------------------------------------
Each year, the federal government awards approximately $400
billion in contracts, and the SBA works with agencies to ensure
that at least 23 percent of all prime government contracts are
awarded to small businesses. Between Fiscal Year (FY) 2006 and
FY 2017, the federal government awarded an average of more than
$90 billion in contracts to small businesses annually, with FY
2017 marking the first year that small business contracts
exceeded $100 billion.\4\
---------------------------------------------------------------------------
\4\Small Business Administration, https://www.sba.gov/document/
support--small-business-procurement-scorecard-overview.
---------------------------------------------------------------------------
The SBA also has programs to help socially and economically
disadvantaged small businesses gain preferential access to
federal contracting and subcontracting opportunities. These
programs are particularly beneficial to women-, minority-, and
veteran-owned small businesses. Not only do they help small
businesses become acquainted with the federal marketplace but
they also level the playing field so small businesses can
better compete.\5\
---------------------------------------------------------------------------
\5\Small Business Administration, https://www.sba.gov/partners/
contracting-officials/contracting-program-administration.
---------------------------------------------------------------------------
Since their inception, SBA contracting programs have proven
to be a powerful tool for helping small businesses compete and
win federal contracts. In addition, they spur innovation and
inject diversity into the federal marketplace, guarding against
supplier consolidation, and non-competitive pricing. Without
this competition, the federal contracting sector would stagnate
and jobs could potentially be lost.\6\
---------------------------------------------------------------------------
\6\No Man's Land: Middle-Market Challenges for Small Business
Graduates, Hearing before the House Committee on Small Business
Subcommittee on Contracting and Workforce, 115th Congress (2018),
testimony of Stephen Ramaley on behalf of the Montgomery County Chamber
of Commerce, on file with the Committee.
---------------------------------------------------------------------------
With these federal contracting goals firmly in place, more
contracts are flowing to small businesses. The increase in the
number of awards to small businesses has resulted in more small
businesses growing out of their size standards.\7\ Moreover,
the value of these contracts are becoming larger, meaning small
firms that win one large contract could potentially outgrow
their size standards.
---------------------------------------------------------------------------
\7\Supra note 6, testimony of Eminence N. Griffin on behalf of
Information Technology Alliance for Public Sector, on file with the
Committee.
---------------------------------------------------------------------------
After firms outgrow their size standard, they are no longer
eligible for SBA programs and small business set-asides. At
this juncture, they enter the open marketplace and are forced
to compete against large, multi-billion dollar companies.
Large firms have several competitive advantages over small
and mid-size businesses. They have extensive past performance
qualifications, strong brand name recognition, a broad array of
professional certifications, and security clearances.\8\
Competing against these larger firms for a share of federal
contracting dollars is inherently difficult for mid-size
businesses.
---------------------------------------------------------------------------
\8\Tonya Saunders, The Mid-Tier Paradox: Too Small to Compete, Too
Large to Survive, Bloomberg Government (May 13, 2016) http://
aboutbgov.com/blog/the-mid-tier-paradox-too-small-to-compete-too-large-
to-survive/.
---------------------------------------------------------------------------
Moreover, large companies have teams of specialists,
including lawyers, graphic designers, and communications
experts to help them comply with the additional federal
requirements of competing in an open marketplace.\9\ One such
requisite is the development of subcontracting plans, which
small firms are not required to prepare. Mid-size companies
often lack the financial resources needed to prepare these
detailed plans, placing them at a disadvantage in the open
marketplace.
---------------------------------------------------------------------------
\9\Mark Amtower, Be Prepared: GWACS, IDIQs will grow in this age of
uncertainty, Washington Technology (March 16, 2017) http://
washingtontechnology.com/articles/2017/03/16/
insights-amtower-gwac-idiq-advice.aspx.
---------------------------------------------------------------------------
Many small businesses have to decide whether to compete
against their larger competitors, scale back to avoid the
challenges of competing in an open marketplace, or consider
becoming acquired. On April 26, 2018, the House Small Business
Committee Subcommittee on Contracting and Workforce held a
hearing entitled, ``No Man's Land: Middle-Market Challenges for
Small Business Graduates.'' Mr. Stephen Ramaley, testified on
behalf of Montgomery County (Maryland) Chamber of Commerce, in
his testimony he remarked that ``more and more firms''' are
opting to ``stay small, sell, or go out of business.''\10\ Ms.
Lisa Firestone, MHSA, President and CEO of Managed Care in
Bethesda, Maryland stated during the same hearing that, ``The
federal government on one hand encourages us to grow,
emphasizing the need for access to capital and entrepreneurial
assistance. Many SBA programs emphasize, educate and support
growth. But on the other hand, it structures policies that
discourage growth such as its size standard structure and
limitation on small business program participation. . . . Let's
work together to make sure we reward growth, not stifle
it.''\11\
---------------------------------------------------------------------------
\10\Supra note 6, testimony of Stephen P. Ramaley on behalf of
Montgomery County Chamber of Commerce, on file with the Committee.
\11\Supra note 6, testimony of Lisa Firestone on behalf of Women
Impacting Public Policy, on file with the Committee.
---------------------------------------------------------------------------
In sum, these mid-size companies occupy a unique position
in the federal marketplace--they are too big to qualify for
small business preferences and often lack the resources to
compete with larger contractors. As small companies become
larger, more successful, and transition to mid-size companies,
many contracts become out of reach. Allowing a longer
transition to the open marketplace for advanced small and mid-
size businesses would protect SBA's initial investment in these
small companies, promote competition in the federal
marketplace, and preserve jobs.
The Committee believes that it is important to give
advanced small and mid-size businesses the tools they need to
succeed and grow in the federal marketplace once they graduate
from the small business size standards.
III. DESCRIPTION OF BILL
Under current law, a business must report its annual
average gross receipts over the preceding three years to
determine its eligibility for access to Federal programs. The
Small Business Runway Extension Act of 2018 (S. 3562) amends
the Small Business Act by lengthening the time the SBA measures
size through revenue, using the average of the preceding five
years instead of the preceding three years.
IV. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following vote was recorded on October 11,
2018.
A motion to adopt, S. 3562, the Small Business Runway
Extension Act of 2018, a bill to modify the method for
prescribing size standards for business concerns, was approved
unanimously by a roll call vote as part of a manager's package.
Senators Risch, Cardin, Rubio, Paul, Scott, Ernst, Inhofe,
Young, Enzi, Rounds, Kennedy, Cantwell, Shaheen, Heitkamp,
Markey, Booker, Coons, Hirono, and Duckworth voted for the
bill.
V. COST ESTIMATE
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC,
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 3562, the Small
Business Runway Extension Act of 2018.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
S. 3562 Small--Business Runway Extension Act of 2018
Under current law, a business must report its average gross
receipts over the prior three years to determine their
eligibility for access to certain resources, programs, and
assistance offered to small businesses by the Small Business
Administration (SBA) and other federal agencies. S. 3562 would
extend that reporting period to five years.
The new reporting period under S. 3562 could affect the
number of businesses eligible for certain SBA assistance
programs or loan programs and thus raise or lower both the
number of participants in those program and the SBA's
administrative costs. However, CBO has no basis for estimating
the number of entities that either would newly qualify or would
no longer qualify as small businesses under S. 3562 for such
programs nor whether the costs of making loans or loan
guarantees to those entities would be higher or lower.
Furthermore, because S. 3562 does not authorize any change in
appropriations for small business assistance programs or
contract awards for small businesses, CBO expects that the net
effect on spending on those programs and contracts would be
negligible.
Using information from the SBA on the costs of similar
activities, CBO estimates that updating the rules to reflect
the revised reporting period would cost less than $500,000;
such spending would be subject to the availability of
appropriated funds.
Enacting S. 3562 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
CBO estimates that enacting S. 3562 would not increase net
direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2029.
S. 3562 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
On September 13, 2018, CBO transmitted a cost estimate for
H.R. 6330, the Small Business Runway Extension Act of 2018, as
reported by the House Committee on Small Business on September
12, 2018. The two pieces of legislation are similar and CBO's
estimates of their budgetary effects is the same.
The CBO staff contact for this estimate is Stephen Rabent.
The estimate was reviewed by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
VI. EVALUATIONS OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
VII. SECTION-BY-SECTION ANALYSIS
Section 1. Short title
This section designates the bill as the ``Small Business
Runway Extension Act of 2018.''
Section 2. Modification to method for prescribing size standards for
business concerns
This section amends section three of the Small Business Act
by modifying the method for prescribing size standards, using
the previous five years of annual average gross receipts,
rather than three, to determine a business's size.
[all]