Agencies should have more flexibility and discretion in defining and using size standards by NAICS code and ownership category to solve the ‘mid-tier trap’ that limits participation and reduces the value created by the small business program.
Some departments have recently recognized the value and challenges of mid-tier businesses, many of which are successful graduates of the small business program. When successful small businesses outgrow the size standards, their ability to participate in the federal marketplace, even in work they are successfully delivering, is substantially limited. This has the effect of destroying the value created by the very program that created it. It erodes the mid-tier base and creates a ‘mid-tier trap’ the industrial base. A concept of “advanced small business” should be considered, consistent with recent initiatives since 2010 of both SBA and Congress to expand small business eligibility; thousands of small businesses are eligible today who would have been considered mid-tier several years ago. Advanced small business should be able to compete for work that is more complex, larger in scale, and/or less risky to the performance of the agency. This definition could use a number of different attributes including combinations of NAICS codes, disparity ratios, length of time since graduation from small business size standard, size and complexity of the anticipated work, agency functional/process area, or attributes. It should also consider expanding ownership categories to include equity backed firms whose portfolios do not include any other companies that participate in the Federal marketplace. Expanding small business competition in this way capitalizes on the success of the small business program and creates more value for the government.