To be eligible for the Small Business Administration's program, an owner or operator applying for disadvantaged status must have a net worth of less than $750,000, excluding his or her primary residence and stake in the company. AIA's Supplier Management Council, however, says that limit is restrictive and fails to account for inflation.
The low net worth limit was one of the primary issues the aerospace suppliers broached on Wednesday during their annual March to the Hill. The council argued in a white paper that the $750,000 limit "fails to account for the financial resources necessary for these firms to succeed in federal contracting." The position paper also noted the limit didn't reflect the impact of almost two decades' worth of inflation.
"Obviously, over 20 years, the cost of capital improvements for small businesses has increased dramatically," said Vickie Wessel, president of Phoenix-based Spirit Electronics and chairwoman of the Supplier Management Council's legislative and small business committees. "$750,000 just does not go very far in acquiring the necessary equipment, IT solutions and systems upgrades you need to stay competitive."
According to the Aerospace Industry Association's calculations, if the existing limit had been adjusted for inflation it would be $1.5 million.
Both the House and Senate small business committees have reviewed the net worth limit for disadvantaged businesses and introduced legislative provisions that would reevaluate and possibly raise it. One provision passed the House in October as part of the 2007 Small Business Contracting Program Improvements Act (H.R.3867) and is awaiting consideration by the Senate Small Business and Entrepreneurship Committee. A related provision was included in the 2007 Small Business Contracting Revitalization Act (S.2300) was passed by the committee in November but has not yet been considered by the full Senate.
There is support for a reevaluation of the net worth limit in both chambers of Congress, Wessel said, but provisions so far have been included in bills with controversial amendments on issues such as HUBzone contracting, making progress slow or unlikely.
"What we're beginning to see is that we need to find another vehicle to get that portion of the bill out of committee," Wessel said. "We need to find a senator to strip and attach the amendment to some other piece of legislation that has a good chance of making it through."
The aerospace suppliers are lobbying not only for a higher net worth limit, but also for the exclusion of personal retirement funds such as IRAs and 401(k)s from the net worth calculation. According to the Supplier Management Council, these funds are not readily accessible to owners until retirement and cannot be used to operate a business.
"Effectively, as the owners save for their retirement, the net worth available for use as collateral by a small disadvantaged business decreases," the council's position paper stated.
Increasing the net worth limit would not only expand opportunities for small companies, but also would enable large prime contractors and agencies to meet their small business goals, Wessel said.
A spokeswoman for Sen. John Kerry, D-Mass., chairman of the Senate Small Business Committee, said the senator has supported a reevaluation of the net worth limit for some time.
SBA did not respond to requests for comment.