The Small Business Element and a Critical Consideration for an Effective Program

January 17th, 2013 in Small Business | by

The revised DBE regulations that were effective February 28, 2011 requires airports and transit authorities to facilitate the participation of small businesses. The new provision reflected in 49 CFR Part 26.39 requires an element to structure contracting requirements to facilitate competition by small business concerns, small business element (“SBE”). The rationale of the Department of Transportation (“DOT”) is that DBEs are small businesses and facilitating small business participation will also foster the participation of DBE firms. The comments on the rules primarily from recipients, however, raised two major concerns: the small business program would divert resources from the DBE program; and shift the focus from programs targeting DBE participation.

An exhaustive discussion of the concerns raised by the recipients would serve no purpose other than to rehash old arguments. The SBE is mandated by the DOT regulation and the only consideration is how to strike a balance between the regulation and recipients’ candid and sincere concerns about the impact of the regulation on DBE participation. DOT did adopt an SBE approach, however, that provides maximum local flexibility because the regulation does not mandate specific program elements.

A key element to consider is the SBA size standards referenced in 49 CFR §26.5 and delineated in 13 CFR Part 121, in designing the scope of the recipients small business concern element. The DBE Liaison Officer (“DBELO”) should avoid the temptation to simply adopt the SBA size standards without careful deliberation. Commercial, highway, bridge and street construction businesses SBA size standards are $33.5 million in annual receipts. The SBA size standards for electrical contractors and architectural services also are $14 million and $7 million,  respectively. In fact, 92 percent of all businesses providing goods and services nationwide fall within the $4.5 million to $22.4 million in annual gross receipts range. As these numbers demonstrate the SBA size standards include business enterprises with significant annual gross receipts and could potentially negatively impact the participation of smaller DBE firms. In order to address this potential adverse consequence, the DBELO in designing an effective SBE program should determine if a lower size threshold is needed to facilitate the utilization of small businesses and effectively limit competition to similarly situated small businesses.

There are a number of other elements that should be considered as well in designing the SBE. These other elements which will be discussed in another blog include verification of the small businesses annual revenue, Personal Net Worth and the impact of state laws on the procurement and solicitation process.