Advantages of Small Business Contracting

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(Reprinted from July 6, 2009 issue of HealthLeaders Media)

For healthcare providers interested in federal contracts, there are several key advantages related to small business contracting that should be of particular interest to most physician groups.

One of the major objectives of federal procurement policy is to provide small businesses with fair and reasonable opportunities to participate in federal contracts. This objective covers all types of federal contracts and extends to healthcare organizations. There are a number of incentives built into procurement laws and regulations that actually favor small businesses under certain conditions.

A key point is that there is no single definition of a small business that applies equally to all contracts. In fact, the definition of a small business is established for each solicitation. In general, every Request for Proposal or Request for Quote will specify a North American Industry Classification System (NAICS) code that reflects a certain industry, and a corresponding size threshold for that industry determined generally by annual sales revenues or number of employees.

Industry classifications and size thresholds are prepared by the Census Department and updated periodically. For example, according to the most recent NAICS data, physician groups are classified under NAICS code 621111. A physician or group practice qualifies as a small business if their average annual revenues for the last three years are less than $10 million. Similarly, most acute care general hospitals are classified as NAICS code 621118, and are considered small business if their average annual revenues are less than $35.5 million.

There are two primary ways that small businesses can participate in federal contracts:

Set-asides
In addition to the general category of small businesses, there are a number of subcategories that are afforded a statutory contracting preference under federal law. This preference enables the government to set aside a certain percentage of contract awards to organizations that meet these criteria. The major categories of organization include:

  • Women Owned Business
  • Small Disadvantaged Business
  • Historically Underutilized Business Zone (HUBZone) Business
  • Veteran Owned Small Business
  • Service-Disabled Veteran-Owned Small Business
  • 8(a) Business (socioeconomically disadvantaged)
  • Native American
  • Alaskan Native Corporation

When contracts are set aside for a particular category, the competition pool is restricted to organizations that meet this criterion.

Another key provision of federal contract law is that government contracts are required to be set aside for small business when the contracting officer has a reasonable expectation that he/she will receive offers from at least two qualified small businesses at fair market prices. This is a powerful incentive, as it effectively means, at least in principle that many federal procurements can be set aside for small business. Even if something is not set aside initially, organizations have the opportunity to make a case to contracting personnel and get something set aside that was not originally planned as such.

Subcontracting
The second major way that small businesses can participate in federal contracts is through a subcontract. As a means of encouraging large businesses to use small business, all federal agencies establish subcontracting goals for all contracts that are in excess of a certain threshold. At present, this amount is $550,000. What this means is that each company with a contract expected to have a value in excess of $550,000 is expected to submit a plan to subcontract a portion of the total contract dollars among the different categories of small business identified above.

Armed with a little bit of knowledge about some of the “ins and outs” of small business contracting under federal law, a hospital or physician group will be surprised at the number of potential business opportunities that they may actually be able to create for themselves.

Advantages of Small Business Contracting

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