Traditionally, the government has used the federal acquisition process as a tool to implement and further its programs and initiatives for social and economic change, and this trend continues.
There are several important initiatives that are intended to benefit businesses, particularly small business. These programs, which include incentive, set-aside, and preference programs, give small businesses and small businesses owned by special minority and disadvantaged groups advantages in bidding on federal contracts.
Under federal law (15 U.S.C. 645(d)), any person who misrepresents a firm's status as a small, small disadvantaged, or women-owned small business concern in order to obtain a contract to be awarded under the small business preference programs established under federal law is subject to:
- the imposition of fines, imprisonment, or both
- administrative remedies, including suspension and debarment
- ineligibility for participation in programs conducted under the authority of the Small Business Act.
Small business set-aside program
The Small Business Set-Aside Program (SBSA) is probably one of the oldest, if not the original, program set up to help small businesses win government contracts. This program helps assure that small businesses are awarded a fair proportion of government contracts by reserving (i.e., "setting aside") certain government purchases exclusively for participation by small business concerns.
The determination to make a small business set-aside is usually made unilaterally by the Contracting Officer. However, this determination may also be joint. In this case, it is recommended by the Small Business Administration procurement center representative (PCR) and agreed to by the Contracting Officer. The regulations specify that, to the extent practicable, unilateral determinations initiated by a Contracting Officer, rather than joint determinations, should be used as the basis for small business set-asides.
- Contracts of $0-$2,500: No set-asides available.
- Contracts of $2,500-$100,000: Under the set-aside program, every acquisition of supplies or services that has an anticipated dollar value between $2,500 and $100,000 (except for those acquisitions set aside for very small business concerns, as described below) is automatically reserved exclusively for small businesses. However, every set-aside must meet the "Rule of Two," which requires that there must be a reasonable expectation that offers will be obtained from two or more small business concerns that are competitive in terms of market prices, quality, and delivery. If only one acceptable offer is received from a responsible small business concern in response to a set-aside, the Contracting Officer is required to make an award to that firm. If no acceptable offers are received from responsible small business concerns, the set-aside will be withdrawn and the product or service, if still valid, will be solicited on an unrestricted basis.
- Contracts over $100,000: In addition, the Contracting Officer is required to set aside any contract over $100,000 for small businesses when there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns and that award will be made at fair market prices.
- Partial Set-Asides: A small business set-aside of a single acquisition or a class of acquisitions may be total or partial. The Contracting Officer is required to set aside a portion of an acquisition, except for construction, for exclusive small business participation when:
- A total set-aside is not appropriate.
- The government's purchase requirement is severable into two or more economic production runs or reasonable lots.
- One or more small business concerns are expected to have the technical competence and productive capacity to satisfy the set-aside portion of the requirement at a fair market price.
- The acquisition is not subject to simplified acquisition procedures.
- Qualified Products List (QPL): Any products on a QPL are not set-aside for small business.
What's required to be awarded a set-aside contract? To get this type of contract, a business must perform at least a given percentage of the contract. This provision limits the amount of subcontracting a concern may enter into with other firms when performing these types of contracts. The provisions are as follow:
- Construction — For general and heavy construction contractors, at least 15 percent of the cost of the contract, not including the cost of materials, must be performed by the prime contractor with its own employees. For special trade construction, such as plumbing, electrical, or tile work, this requirement is 25 percent.
- Manufacturing — At least 50 percent of the cost of manufacturing, not including the cost of materials, must be done by the prime contractor.
- Services — At least 50 percent of the contract cost for personnel must be performed by the prime contractor's own employees.
Recertification Process for Long-Term Set-Asides. In an effort to improve small business contracting and make sure government goals are being met, the SBA is issued a regulation effective June 30, 2007, regarding size certification. For long-term contracts (more than five years), small businesses will have to recertify their size status after five years, and then before the execution of any contract option after that. In addition, companies that have undergone mergers or acquisitions will have to recertify their size status as well.
Originally, businesses only had to certify prior to receiving a contract. The problem was, sometimes businesses grow (or merge) into larger businesses over time. So a contract that was intended only for small businesses morphs into a contract for a regular business. But the government still recognizes the contract as a "small business" contract, counting it toward fulfilling the government's procurement goals.
This misleading situation skewers the true level of contracts being awarded to actual small businesses.
According to the SBA, the only objective of the new regulation is to achieve better tracking of set-aside contracts, not to penalize growing businesses. In fact, if during the course of a contract your business grows out of its "small" size, there is no termination. All terms and conditions still apply. The only outcome is that the buying agency no longer gets credit for contracting with a small business, forcing the agency to work harder to meet its procurement goals. They also hope the improved record-keeping will increase opportunities for small businesses.
Very small business pilot program
The purpose of the Very Small Business (VSB) Pilot Program is to improve access to government contract opportunities for "very small business concerns" by reserving certain acquisitions for competition among such concerns. (Unless this currently expired initiative is extended by Congress, VSB contracts under this program must have been awarded before September 30, 2006.)
A "very small business concern" is defined as a business that has no more than 15 employees and average annual receipts of less than $1 million and that has headquarters located within one of the following ten designated SBA districts:
- Albuquerque, NM (serving New Mexico)
- Los Angeles, CA (serving the following counties in California: Los Angeles, Santa Barbara, and Ventura)
- Boston, MA (serving Massachusetts)
- Louisville, KY (serving Kentucky)
- Columbus, OH (serving the following counties in Ohio: Adams, Allen, Ashland, Athens, Auglaize, Belmont, Brown, Butler, Champaign, Clark, Clermont, Clinton, Coshocton, Crawford, Darke, Delaware, Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton, Hancock, Hardin, Highland, Hocking, Holmes, Jackson, Knox, Lawrence, Licking, Logan, Madison, Marion, Meigs, Mercer, Miami, Monroe, Montgomery, Morgan, Morrow, Muskingum, Noble, Paulding, Perry, Pickaway, Pike, Preble, Putnam, Richland, Ross, Scioto, Shelby, Union, Van Wert, Vinton, Warren, Washington, and Wyandot)
- New Orleans, LA (serving Louisiana)
- Detroit, MI (serving Michigan)
- Philadelphia, PA (serving the State of Delaware and the following counties in Pennsylvania: Adams, Berks, Bradford, Bucks, Carbon, Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware, Franklin, Fulton, Huntington, Juniata, Lackawanna, Lancaster, Lebanon, Lehigh, Luzern, Lyocming, Mifflin, Monroe, Montgomery, Montour, Northampton, Northumberland, Philadelphia, Perry, Pike, Potter, Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming, and York)
- El Paso, TX (serving the following counties in Texas: Brewster, Culberson, El Paso, Hudspeth, Jeff Davis, Pecos, Presidio, Reeves, and Terrell)
- Santa Ana, CA (serving the following counties in California: Orange, Riverside, and San Bernadino)
Under the VSB program, a Contracting Officer must set aside for very small business concerns any acquisition that has an anticipated value exceeding $2,500 but not greater than $50,000 if there is a reasonable expectation of obtaining offers from two or more responsible very small business concerns that are competitive in terms of market prices, quality, and delivery. In addition, the businesses must be headquartered within the geographical area served by the designated SBA district.
If only one acceptable offer is received from a responsible very small business concern in response to a very small business set-aside, the Contracting Officer is required to make an award to that firm. If no acceptable offers are received from responsible very small business concerns, the Contracting Officer is authorized to cancel the "very small business set-aside" and proceed with the acquisition as a "small business set-aside."
The VSB program does not apply to contracts awarded pursuant to the 8(a) Program, which pertains to small disadvantaged business concerns. It also does not apply to any government purchase requirement that is subject to the Small Business Competitiveness Demonstration Program.
Small business R&D funding programs
The government sponsors two programs, the Small Business Innovation Research (SBIR) Program and the Small Business Technical Transfer (STTR) Program, which have proven very effective in releasing the "innovative juices" of the research and development minds of the small business community.
Although they were resisted at first by government buying offices, they are now very popular with both the buying offices and Congress. If you watch late-night TV, these initiatives are usually the source of the "Grants" that you hear about. . .and they are certainly not free!
Small business innovation research (SBIR) program
The SBIR program is a highly competitive program that encourages small businesses to explore their technological potential while providing the incentive to profit from its commercialization. SBIR funds the critical startup and development phases of R projects that serve a government need and have the potential for commercialization in private sector and/or government markets. Although the risk and expense of conducting serious R efforts are often beyond the means of many small businesses, by reserving a specific percentage of federal R funds for small business, SBIR protects the small business and enables it to compete on the same level as larger businesses.
The program, which was funded at $1.164 billion in Fiscal Year 2006, is administered by the following ten federal agencies:
- Department of Agriculture
- Department of Commerce
- Department of Defense
- Department of Education
- Department of Energy
- Department of Health and Human Services
- Department of Transportation
- Environmental Protection Agency
- National Aeronautics and Space Administration
- National Science Foundation
The government agencies issue a SBIR solicitation once or twice a year, depending on the size of the agency's budget, describing its R needs and inviting R proposals. Only small, for-profit, American-owned, independently operated businesses can apply under the program. (To be considered "small" under SBIR, the business must have 500 or fewer employees, including all affiliates and/or subsidiaries.) In addition, the principal researcher must be employed by the business.
Companies apply first for a six-month Phase I award of $50,000 to $100,000 to test the scientific, technical and commercial merit and feasibility of a particular concept. If Phase I proves successful, the company may be invited to apply for a two-year Phase II award of $500,000 to $750,000 to further develop the concept, usually to the prototype stage. Proposals are judged competitively on the basis of scientific, technical and commercial merit. Following completion of Phase II, small companies are expected to obtain funding from the private sector and/or non-SBIR government sources for Phase III, which is to develop the concept into a product for sale in private sector and/or government markets.
Since its enactment in 1982, as part of the Small Business Innovation Development Act, SBIR has helped thousands of small businesses to compete for federal research and development awards. Their contributions have enhanced the nation's defense, protected the environment, advanced health care, and improved the management and manipulation of information and data.
For more information on SBIR solicitations, visit the SBIR website.
Small business technical transfer program
Although similar in structure to SBIR, the Small Business Technical Transfer Program (STTR) funds cooperative R projects involving a small business and a non-profit research institution (i.e., a university, federally funded R center, or non-profit research institution). Established by Congress in 1992, the purpose of STTR was to create an effective vehicle for moving ideas from the nation's research institutions to the market, where they can benefit both private sector and government customers. The government STTR program was funded for $130 million in Fiscal Year 2006.
The STTR program is administered by the following five federal agencies:
- Department of Defense
- Department of Energy
- National Aeronautics and Space Administration
- Department of Health and Human Services
- National Science Foundation
Just like the SBIR, there are three phases to the program. Phase I is the startup phase for the exploration of the scientific, technical and commercial feasibility of an idea or technology. Awards for Phase I are for up to one year and up to $100,000. Phase II is the expansion phase of Phase I results. During this period, the R work is performed and the developer begins to consider commercialization potential. Awards for Phase II are for up to two years and up to $500,000. Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace; there is no STTR funding of this phase.
Historically, about 15 percent of SBIR and STTR proposals are awarded a Phase I contract, and approximately 40 percent of Phase I projects are subsequently awarded a Phase II contract. However, in recent solicitations, a much higher percentage of STTR Phase I proposals was awarded a Phase I contract.
The qualifications for companies applying for STTR are similar to those for STIR. Only small for-profit businesses can apply under the program. In addition, the business must be American-owned and independently operated, with size limited to 500 employees. Although a company does not have to be an established business when it bids, it must be an established business when the award is made.
There is no size limit for the research institution partner. In other words, small businesses can team up with some rather large operations to work along with them to get an idea to market.
Since this program consists of developing and bringing a new idea or technology to market, it is important that the future rights to projects are determined at an early stage. The small business and the research institution must develop a written agreement prior to a Phase I award. This agreement must then be submitted to the awarding agency if requested.
For more information on the SBIR and STTR programs, contact your local PTAC office or:
Small Business Administration Office of Technology
409 Third Street, SW
Washington, DC 20416
(202) 205-6450
Getting started in SBIR and STTR programs
To get started in the SBIR or STTR programs, you must first obtain the current solicitation, which lists all the research topics under which government agency is seeking Phase I proposals and contains detailed information on how to submit a proposal.
The DoD issues two SBIR solicitations and one STTR solicitation each year. The first SBIR solicitation is issued in May and closed in August. The second SBIR solicitation is issued in October and closed in January of the following year. The STTR solicitation is issued in January and closed in April.
To receive hard copies of current and future SBIR and STTR solicitations, place your name and address on the SBIR/STTR mailing list by registering online. You can also access the SBIR and STTR solicitations electronically through this website.
After receiving the solicitation, resolve any questions you may have. If you have a technical question about a specific research topic listed in the solicitation, you can talk by telephone with the Topic Author, whose name and phone number will be listed in the solicitation topic. (Keep in mind that Topic Authors will be listed, and telephone questions will be accepted, only during the two months following public release of the solicitation on the website and before the government begins accepting proposals.) Or you can submit a written question through the SBIR/STTR Interactive Topic Information System (SITIS), in which the questioner and respondent remain anonymous and all questions and answers are posted electronically for general viewing until the solicitation closes.
Defense department SBIRSTTR fast track
The "Fast Track" is a special program for the Department of Defense SBIR and STTP programs that offers a significantly higher chance of SBIR/STTR award, and continuous funding, to small companies that can attract outside investors. Small companies retain the intellectual property rights to technologies that they develop under these programs. Funding is awarded competitively, but the process is more streamlined and easier.
Projects that obtain such outside investments and thereby qualify for the Fast Track will, subject to qualifications described in the solicitation, be evaluated for Phase II award under a separate, expedited process and be eligible to receive interim funding of $30,000 to $50,000 between Phases I and II. They will be selected for Phase II award provided they meet or exceed a threshold of "technically sufficient" and have substantially met their Phase I technical goals.
To qualify for Fast Track, small companies and outside investors must follow the procedures and rules detailed in section 4.5 of the SBIR/STTR solicitation. This discussion only summarizes the most important requirements.
Many small companies have found the Fast Track policy to be an effective tool for leveraging their SBIR (or STTR) funds to obtain additional funds from outside investors. This is because, under the Fast Track, a small company can offer an investor the opportunity to obtain a match of between $1 and $4 in DoD SBIR (or STTR) funds for every $1 the investor puts in.
Toward the end of a small company's Phase I SBIR or STTR project, the company and its investor must submit a Fast Track application stating, among other things, that the investor will match both interim and Phase II SBIR or STTR funding, in cash, contingent on the company's selection for Phase II award. The matching rates needed to qualify for the Fast Track are as follows:
- For small companies that have never before received a Phase II SBIR or STTR award from DoD or any other federal agency, the matching rate is 25 cents for every SBIR or STTR dollar. (For example, if such a company receives interim and Phase II SBIR funding that totals $750,000, it must obtain matching funds from the investor of $187,500.)
- For all other companies, the matching rate is $1 for every SBIR or STTR dollar. (For example, if such a company receives interim and Phase II SBIR funding that totals $750,000, it must obtain matching funds from the investor of $750,000.)
The matching funds may pay for additional R on the company's SBIR or STTR project or, alternatively, they may pay for other activities (e.g., marketing) that further the development and/or commercialization of the technology.
In the application, the company and its investor must certify that the outside funding qualifies as a "Fast Track investment," and that the investor qualifies as an "outside investor." Outside investors may include such entities as another company, a venture capital firm, an individual "angel" investor, or a non-SBIR or non-STTR government program. Outside investors may not include the owners of the small business, their family members, and/or affiliates of the small business.
DoD will notify each Fast Track company, no later than 10 weeks after the end of Phase I, whether it has been selected for Phase II award. Once notified, the company and investor must certify, within 45 days, that the entire amount of the matching funds from the outside investor has been transferred to the company.
If you need assistance regarding Fast Track, you can visit DoD's STIR/STTR website for complete details on the program. The site also contains a list of private-sector sources of early-stage technology financing as well as a list of ongoing Phase I SBIR and STTR projects.
