G O V E R N M E N T

Small Business Gets Government Help SBA intensifies pressure on Government for more small business contracts, spurs new chemical developments A mildly distracting hum in the ears of government procurement officers is building up more insistently, as the Small Business Administration steps up efforts to channel more government buying and selling into the hands of small business. From the Pentagon to the General Services Administration— literally from missiles to mops—the effects on purchasing are showing up.

Just-compiled figures for the first six months of 1960 show that 13,163 prime contracts, valued at nearly $485 million, were awarded to small busi­ness concerns as a direct result of SBA's set-aside program with cooper­ating federal agencies. Fiscal 1961 seems likely to outdo the record of $878.2 million in joint set-asides that flowed into small business coffers in

fiscal 1960. In fiscal 1959, contracts to small business totaled $848.6 mil­lion. And, although procurement records are not kept on an industry basis, government observers point out that participation by small chemical firms is on the rise. Whether a chemi­cal company falls under the small busi­ness category is arrived at by a flexible but complex formula hinging on the number of employees.

Attacks Loopholes. SBA is pushing for small business through increased pressure for implementing existing provisions, rather than through changes in procurement regulations. Under the set-aside program, SBA and other government agencies make joint determinations to set aside, in whole or in part, proposed government pur-

Set-Asides Initiated by SB A

J\

Dept. of Defense $640,276

Agreed to by Purchasing

' Agency lousands of Dolla

$552,689

Contracts Awarded by Purchasing

Agency irs

$424,801 General Services Adm. 54,504 40,790 32,241 Federal Aviation Agency 21,673 17,982 11,376 Dept. of the Interior 6,439 6,439 4,273 Dept. of Agriculture 6,423 6,404 6,173 Veterans Adm. 2,477 2,447 2,496 Post Office Dept. 1,559 1,559 1,732 Dept. of Commerce 1,027 1,012 1,194 I N d U U M d l M c f U l I d U U C b OC

Space Adm. 661 661 267 Dept. of Health, 422

E- r\ ι Ι Λ Ο Τ Ι Λ Π *^f»/H \ Λ / Λ Ι Τ Ο Ι Ά

422 362 education, ana vveiTare

Other agencies 9

$735,470

9

$630,413

10

$484,924 Note: Contracts actually awarded during this period (column 3) are not necessarily related to those initiated by SBA or agreed to by purchasing agency (columns 1 & 2) during the same period because of the time lag between the initiation and the final awarding of the contract.

Source: Small Business Administration

chases exclusively for competitive bid­ding by small business concerns. Prime purpose: to assure that small firms get a fair share of government business. The resulting stiffer compe­tition not only promotes the growth of small business, but can also mean lower prices for products and services, hence, savings to the Government.

To carry out the program, SBA posts representatives at major government purchasing offices. There, in coopera­tion with procurement officials, SBA screens proposed purchases to deter­mine jointly whether small firms can supply all or part of the needed items or services at competitors' prices. If SBA's request is denied, it can appeal to the head of procurement for the agency involved. Since SBA launched its set-aside program in 1953, 93,648 prime contracts totaling almost $3.6 billion have gone to small business.

But many procurement officials prefer to deal with established sup­pliers, usually "name" companies. They argue that, in this way, they are more assured of prompt delivery and product quality and have more legal contract safeguards in the bargain.

There are loopholes in procurement regulations that enable them to bypass small companies. They sometimes let procurements without getting specifi­cations and drawings from the prime contractor. This can stifle competition on future purchases, SBA claims, by forcing the purchasing agency to buy on a "sole-source" basis from the pre­vious supplier or to specify that the item be equal to that previously fur­nished. Without specifications or drawings, competitors find it difficult, or impossible, to come up with an "equal" product. SBA is exerting a strong effort against such practices.

More Subcontracting. Subcontract­ing arrangements for small business, is another area in which SBA is intensi­fying its activities". Foundation of its program here is to establish working agreements with cooperative prime contractors to farm out, under sub-

36 C&EN OCT. 3, 1960

Set-asides Spur Government Buying from Small Business Joint set-aside program, January through June 1960

contracts, a certain amount of the project to small companies. These agreements include commercial as well as defense contracts. To date, SBA has set up 36 such cooperative agree­ments.

Amendments tacked to the Armed Services Procurement Regulation (ASPR) early this year require that small business subcontracting arrange­ments be included in defense contracts valued at over $1 million wherever the purchasing activity deems it possible. Even in contracts for less than $1 mil­lion, the prime contractor is urged to adopt this practice.

In addition, SBA guides small firms to areas which need competition and also acts in a procurement advisory capacity for small business. Its field staff constantly turns up and evaluates new small business suppliers or items or services. The Administration then makes arrangements with contracting officials to let companies with proved capabilities get in on the bidding.

Many firms do not compete or con­sider themselves qualified to bid be­cause they don't know government purchasing rules and procedures or which offices to contact. Here SBA lends a hand and also helps straighten out differences between small busi­nesses and government procurement agencies—speeding up payments, ar­ranging conferences between contract­ing officials and small business repre­sentatives, and the like. Also, during the second half of fiscal 1960, SBA, in cooperation with other federal agen­cies and state and local business groups, cosponsored 13 small business opportunity meetings.

Multi-functional. These are just some facets of SBA's many operations. Here are its other important activities:

• Making loans to small business— since 1953, it has approved 21,000 loans worth about $985 million.

• Publishing management aids.

• Sponsoring management extension courses at colleges and universities— to date more than 800 courses at 280 educational institutions have been at­tended by some 27,000 businessmen.

• Financing research studies.

• Helping in the formation and financing of privately owned and operated small business investment companies to get more private invest­ment capital into small enterprises.

Loans for CPL Under its loan pro­gram, SBA can provide funds to small businesses which are unable to ar­

range financing through private lend­ing sources. It makes two loan types: direct (SBA puts up all the money) or participation (SBA joins with a bank or other private lending source to finance the project). In all cases, SBA is limited to a maximum loan of $350,-000 to any one borrower. On a joint venture, it can carry up to 90% of the financial load. Interest on the loans can vary, but usually ranges between 5 and 51/2% SL year. Borrowers can take as long as 10 years to repay the loans.

Chemical participation in the loan program is on the upswing, says SBA. Take the case of two chemists who, on a shoestring, bought into a small plas­tics firm in 1956. At the time the company—a maker of paper-to-vinyl laminates and plastics specialties for graphic arts—had net annual sales of only $10,000. By adjusting prices, the pair doubled sales within the first few months. Then they perfected a new process that would not affect the color in laminated cards. Results were so good that business grew steadily. They moved into bigger quarters in 1957, and put in new equipment. Net sales in 1958 came to $33,000 with $8500 gross profits. In 1959, net sales climbed to $48,000 but earnings dipped slightly to $8400. For the first six months of this year, sales hit $28,-000 and earnings $9700.

The pair decided to broaden opera­tions by entering the related field of custom vacuum forming—a promising growth area. But they needed $12,-000 to buy equipment. Approaching banks proved fruitless. One refused, saying the company's net worth was too low. Another agreed to provide a portion of the loan, but only on short-term. As a last resort, the pair turned to SBA.

They estimated that, with new equipment, the company could, over the next 18 months, net some $47,000. SBA investigators labeled the venture sound and made a direct loan of $12,-000 at 5V2% interest to be paid off over five years.

The outlook for financing sound technical and business ideas is very bright at SBA. 4 As its administrator, Philip McCallum, sums it up, "We in the Small Business Administration never let ourselves forget that there are in the United States today more than 4.3 million small companies which account for 96% of the going businesses in the country and 50% of the nation's economic activity."

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