Redefining 'small' business

SBA’s increased size standards benefit equipment rental industry


In September, the Small Business Administration (SBA) increased size standards for two of the three North American Industry Classification System (NAICS) codes used in the equipment rental industry. Since the change went into effect Oct. 24, 2012, equipment rental businesses classified under NAICS codes 532412 (Construction, Mining and Forestry machinery and Equipment Rental and Leasing) and 532490 (Other Commercial and Industrial Machinery and Equipment Rental and Leasing) have been classified as small businesses if they have annual revenues up to $30 million. Those businesses under NAICS code 522310 (General Rental Centers) remain at the $7 million level.

Size standards set by the SBA determine what businesses are eligible for federal procurement projects and small business assistance programs, based primarily on annual receipts and number of employees. When the SBA began reviewing size standards, the American Rental Association (ARA) became involved, submitting comments and engaging in dialogue with the SBA to encourage and support the size standards increase. ARA’s response was one of six comments for this sector of the Federal Register’s proposed changes and the only response for the NAICS codes covering equipment rental.

“The changes were sought because the previous $7 million cap limited the number of small equipment rental companies that had enough inventory on hand to handle the jobs that were out there,” says John McClelland, ARA’s vice president for government affairs. “There have been many instances in which non-rental companies have bid for government contracts under small business set-aside rules. After winning the bid, these entities attempt to acquire the equipment necessary to complete a job by re-renting from a legitimate rental company. Ultimately they often fail to meet their contract obligations because they cannot re-rent the equipment at rates low enough to make a profit. These new standards allow legitimate rental businesses with adequate fleets to meet government contracting requirements and participate in this growing market.”

Bob Caudle, director of government sales for United Rentals, Greenwich, Conn., says the size standard increase presents a real  growth opportunity for rental businesses.

“The previous $7 million size standard for these two NAICS codes made it difficult for large companies like United to find viable small businesses to work with on projects at the state, local or federal level. The old ceiling created a situation in which small businesses would quickly hit the limit and suddenly find themselves in competition with larger companies rather than continuing to build partnerships with them,” Caudle says.

“Now that the limit has been raised to $30 million in these two NAICS codes, small businesses can actually make plans for the future that include both long-term partnerships with larger businesses and growth beyond the $7 million threshold. This allows large business like United Rentals to partner with those small businesses that look to grow, create market share and refine their business practices. We can look at a larger pool to ensure that we’re working with viable small businesses that have integrity, can pay promptly and perform as Tier 1 providers. In addition, we no longer need to partner with thousands of small businesses. Instead, we can partner with a few dozen for a longer period of time before they hit the limit,” he says.

Robert Veazey, government accounts manager, Neff Rental, Tampa, Fla., also sees the increased size standards as a benefit for the entire industry. “The more people we can partner with on set-aside projects the better. This may open up some doors for businesses that want to get involved in government contracting and give large companies that work to partner with small businesses a larger pool of companies from which to choose,” he says.

Caudle also offered some advice for those businesses that are able to pursue partnerships and contracts with larger companies under the new size standards. “Getting involved with these contracts isn’t just about meeting the size standards. It is important to present yourself as a viable business. If you’re going to pursue a particular small business certification such as a woman-owned business enterprise, look to an outside agency for certification,” he says.

“Many states and cities offer these services through a government certifying office. While self-certification is an option, you’ll always have more credibility using an outside agency. It’s also important to put your business on the radar. Businesses registered with the state as a small business often have more success with government contracting than those that are not registered. Registration through something like the System for Award Management (SAM), formerly the Central Contractor Registration (CCR), helps local contracting officers find businesses that offer the services and products they need and takes some of the burden of the bidding process off the small business,” he says.

The last comprehensive review of size standards was 30 years ago, when the limit for categories affecting equipment rental was set at $7 million. In 2007, the SBA began a comprehensive review of its size standards. In order to avoid future disparities between standards and changes in the economy, the federal contracting marketplace and industry structure, the Small Business Jobs Act of 2010 requires the SBA to conduct a detailed review of all size standards a minimum of once every five years.