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Supply Chain

Contracting: Back to Basics, Part II

By Michael E. Robinson, Defense Logistics Manager, MassMEP, michaelr@massmep.org

In our last supply chain article, we examined the basic registration process that each business must go through to become a vendor to the Department of Defense, as well as other federal agencies. We ended with a brief discussion of HUB Zones, and the plan to continue this time with a thorough examination of all the preference programs utilized in contracting by the DOD. Before we launch into that it might be helpful to frame the argument for being aware and pursuing any programs that might help your business.

In almost every case, there is an incumbent company already selling the item you would like to bid on, manufacture, and provide to the DOD. You are almost never going to appear on the scene as a savior, the only company that can supply something, no matter how unique your capabilities might seem. Some other company already supplies it, and you are almost always in the position of having to replace them. So if there are preference programs that can help you accomplish this, you ought to avail yourself of them. It is sort of like tax deductions. I never have decided not to take my mortgage interest deduction. If it is legal, I take it. If there is a contracting advantage available to you, use it! So let’s look at the programs.

The first demographic is being a small business. It usually shocks people when they learn that for manufacturing, a small business is defined as having up to 500 employees in some cases, and in others up to 1000. The size standards are set by the North American Industrial Classification System (NAICS) code. All this can be looked up on the SBA web site: http://www.sba.gov/size/. The goal for DOD is that 23% of its procurements be made to small businesses, as defined by the size standards.

The next designation is Woman owned small business. The goal is 5%. A women owned small business is a business meeting the above size standard, and at least 51% owned by women, with women taking an active role in the management of the firm. If your mother owns the business, but she is retired in Florida, that won’t meet the requirements. There is no certification requirement for the DOD in terms of women ownership. The firm self-certifies that they are women owned. If a protest is made, then the customer can audit the firm to verify the certifications and representations made as part of the proposal. If they are found to be wrong, penalties can apply. There are several third party certifications available for women-ownership of businesses. The Department of Transportation (DOT) has a third party requirement, as well as the Commonwealth of Massachusetts. There is also a private certification available through the Women's Business Enterprise National Council (WBENC). This certification is valued by corporate members of WBENC, but not required for DOD contracting.

A small disadvantaged business (SDB) is a business owned (51%, with active management) by someone of a class who can demonstrate a preponderance of evidence that they, as a class, have suffered discrimination of an economic or social nature. Owners must be American citizens and have a net worth, excluding the business and home, of less than $750k. SBA certification is required to take advantage of being an SDB. This certification leads to a 10% price advantage in proposal evaluation. There is a 5% goal for SDB participation in contracting. Further information can be attained at http://www.sba.gov/sdb/.

Some SDBs may qualify for 8a status. These are firms who go through an application process with the SBA leading to acceptance in the 8a program. This program, like the HUB Zone program discussed last month, has set-asides: contracts that may only be competed among participants in the 8a program. All 8a firms are SDBs but not all SDBs qualify for 8a participation. The differentiator is that 8a firm owners must have a net worth of less than $250k. Definitive information is available at: https://sba8a.symplicity.com/applicants/guide.

The newest preference program is for veterans who have service connected disabilities. The goal for service connected disabled veteran owned businesses is 3%, established by Public Law 106-50, in 1999. A new law, PL 108-183 enacted in 2003, provides for sole source contracts to small businesses owned by service-disabled veterans, up to $5,000,000 for manufacturing concerns. Participation in this classification is by self-certification. Proof of disability will be by documentation from the VA, if required. To take advantage of this program, a qualifying firm needs to ceaselessly market themselves to the small business office at procuring commands.

These are the preference programs that are available to small business owners. If you have questions about these programs, and how they might affect your firm, please feel free to contact me at michaelr@massmep.org or call (413) 628-4538.

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