SBA TO VOTE ON INCREASED SIZE STANDARD FOR ENGINEERING SERVICES

The U.S. Small Business Administration has proposed an increase in the size limitation from $4.5 million to $19 million in annual revenues for engineering firms to qualify for set-aside benefits and other small business preferences. There are many reasons the existing outdated and arbitrary size limitation is no longer relevant or desired for all parties concerned.

Primarily, the artificially low SBA size limitations on small engineering firms indirectly inflate the cost of engineering services provided to the government and the private sector. They also put small engineering firms at a competitive disadvantage with large firms. Contrary to the SBA’s historic goals and charter, its current regulations are actually harming small firms. This rule change will reportedly help up to 9,450 small professional firms.

Reasons to raise the limit the limit are as follows:

• Big engineering firms are crowding out small ones, causing price hikes

• Engineering firms lose productivity when mega-firms dominate the market

• Taxpayers would benefit from less costly services from small firms

• The SBA has, in effect, imposed a hiring freeze on small firms

• Small firms need to add staff specialists to compete with big firms

• Increasing SBA size standards would level the playing field, improving service

• Small, vibrant engineering firms tend to produce greater innovation

• Current low SBA size standards have been not increased in over a decade

• The SBA's inspector general found that some large firms get SBA benefits

Hinman does a lot of Homeland Security consulting that results in protecting federal buildings against the risk of terrorism. We are doing well in this depressed economy. However, in 2010 we reached the current small business size standard for engineering services. Although we are in a position to grow, the threat of being removed from the small business category in 2012 has limited our firm’s ability to help bolster the economy by hiring. It also has limited our ability to accept new clients and offer our associates compensation increases.

Our firm is tiny in comparison to our competitors. The architectural, engineering and construction community has been aggressively consolidating over the past decade, with large firms merging or buying distressed smaller firms, as well as firms owned by aging baby boomers interested in retiring. 

This has dramatically changed the character of the industry. According to a list of the top 500 engineering firms in America, published by Engineering News Record (ENR), the largest design firm had revenues of more than $5 billion in 2009, over 1,000 times greater than our firm. The smallest firm on the list is more than four times the size of our firm in terms of revenues. To illustrate how the industry has consolidated recently, the size of the largest firm was more than 60% bigger in 2009 as compared to 2007, and the 500th firm was roughly the same size with a change of about 10%. Because of the downturn in the economy, the 500th  firm was 10% larger in 2007 than in 2009.

As a result of this situation, we do not have the staff or financial resources to compete with large firms. If this size increase is not passed, it will accelerate the consolidation of architecture and engineering firms in the U.S., because firms our size are unable to remain competitive and will be forced to either fail or sell out to larger firms.

 

ARBITRARY FEDERAL REGS BLOCK MANY SMALL FIRMS FROM CREATING JOBS

Exceeding SBA Size Ceiling Cuts Competitive Advantages for Small Engineering Firms

WASHINGTON, Sept. 28 – In this difficult economy, Hinman Consulting Engineers, leaders in physical security building design, is one of the few engineering firms in a position to hire new employees. But the firm is close to exceeding $4.5 million in revenues, meaning it will lose its competitive SBA status that helps the San Francisco-based firm get government projects.

This week, Eve Hinman, a soft-spoken CEO and mother of two, is knocking on doors in Washington to get help to raise this artificial SBA barrier to job creation beyond the 25 employees that currently work at woman-owned HCE.

The Small Business Administration has arbitrarily said that the engineering company Hinman runs which performs homeland security services—and all other engineering and architectural firms—must be treated as large companies in federal contracting if they earn one dollar more than $4.5 million in revenues.

“It’s tough for small firms to compete with big engineering firms for federal projects,” says CEO Hinman. “So SBA’s regulation, in effect, means that all firms our size and smaller must stay small. That means we can’t hire more people or buy goods and services that will help our communities grow and thrive. It also means that taxpayers will have to pay for work done primarily by big, costlier companies.”

Dr. Hinman, a pioneer in her field, was a principal author in charge of two Federal Emergency Management Administration’s books on how to better protect buildings from terrorist attack. She is passionate about her engineering science, has testified before Congress, published a book on the Oklahoma City bombing, has written extensively, and is consulted by leading building designers all over the world. But there is a limit on her ability to expand her company’s work in this field.           

In meetings on Capitol Hill and with White House officials this week, Hinman will attempt to win an increase in the long-standing SBA ceiling. She has ventured to Washington as part of a group of women executives with the organization Women Impacting Public Policy, who will be meeting with their elected representatives and with Obama Administration staffers this week.

Dr. Chris Klentzman, who leads Hinman’s branch office in Northern Virginia, says, “It makes no sense for our type of services firm to be classified as a small business only if we have less than $4.5 million in revenues, when other similarly organized professional services firms have ceilings of $7 million.”Firms with higher ceilings include law firms, environmental consultants, marketing agencies, financial services companies and many other types of businesses. Some companies are classified by the SBA as small businesses even if they employ as many as 499 people.

“Why limit job growth for engineering and architectural firms?” Hinman asks. “It’s completely arbitrary and hasn’t changed in years.”

 

Photo Credit: Cortnee Loren Brown | www.cortneelorenbrown.com