How to Increase
Small Business Utilization
Small businesses are the backbone of the construction industry. By utilizing small businesses, organizations support local communities. This fact has been widely recognized throughout the industry and especially by government organizations. The federal government possesses mandates and incentives encouraging organizations to utilize small businesses across multiple sectors and project types. Whether your company would like to take advantage of tax breaks for small business utilization or try to meet utilization goals, there are multiple ways you can increase your use of small businesses.
What is a small business?
According to the Small Business Administration (SBA), a small business is defined by its revenue and/or its employment. The limits in revenue and employment are contingent on the NAICS code of the business. For example, for a distillery to be considered a small business, the company must possess less than 1,000 employees. In construction, the limit is based on revenue. For the NAICS code 236220 which is used to describe commercial and institutional building construction, the company must have generated less than $39.5M in revenue.
The SBA possesses resources online to check if your company is a small business or not according to these guidelines, but how do you check if another company is a small business? If a company is involved in the federal market, it will have a SAM.Gov registration. If you log in to your account, you can conduct an entity search for that company’s name. Check their Representations and Certifications and determine which NAICS codes they identify with and if they are a small business.
If you are a project owner, you can stipulate that you wish only small businesses may bid on the project so long as competition is strong enough for that project. More commonly, owners will stipulate that small businesses will be evaluated more favorably when taking the best value approach to evaluation. Each state varies on bidding requirements and if owners may restrict bidders to only small businesses.
If you are a project owner utilizing private funds, you can also opt to award projects directly to small businesses or companies which utilize small businesses extensively.
The federal government issues research surveys called sources sought notices to gauge if there are enough qualified small business contractors available to bid on the project. If there are, the contracting agency will only allow small businesses to bid on the project. This would exclude large companies from being able to bid on the job unless they forge a small business partnership.
General Contractors can and are often mandated to utilize small businesses as their trade subcontractors. GCs will need to reach out to companies that perform specific trades and utilize them to perform aspects of the scope of work.
A potential concern about utilizing small businesses in this way is the presence of quality small business subcontractors. In certain areas of the country, a small business may not exist that can perform complex or specialty work required by the project. For example, Secure Compartmentalized Information Facilities (SCIF) for the military require specialized HVAC and security systems.
Contractors should understand the strict ICD-705 requirements to complete the project satisfactorily. You may be able to mitigate this potential risk through utilizing a small business construction manager to oversee portions of the project or staff certain key positions through a small business, like overseeing the large business handling the SCIF components.
On large projects, it can be difficult for a project manager or superintendent to oversee all aspects of the job at once. Thus, many projects call for at minimum key trade managers. You can utilize a small business to provide these managers.
It can be a conflict to let your subcontractor appoint their trade manager. They may express favoritism or cover for their company if they select their own trade manager. Thus, utilizing an additional small business will ensure better quality due to the reduction of conflicts of interest. Utilizing a division or trade manager will also increase your small business utilization.
Small Business Partnerships
A more serious way to utilize small businesses is to develop partnerships through joint venture arrangements. The SBA lists the following benefits to forming a joint venture between a large business and a small business: “Collective representation of past performance, Shared costs and resources, Leveraging the other partner’s experience and market share.”
This arrangement can be mutually beneficial for both entities. Large businesses can now bid on jobs that were set aside for small businesses while supporting their small business partner to acquire experience and the potential to grow. Small businesses get the opportunity to complete a project typically larger or more complex than they are used to as well as add to their portfolio.
No two companies should rush into a joint venture As this is a legal and contractual arrangement, two companies should be sure they would like to establish a long-term relationship with one another. Large companies can begin utilizing small businesses as trade subcontractors or division managers to demonstrate quality workmanship and a compatible working style. Small businesses should likewise get to know large business organizations and work with their potential partners.
IAP Design-Build, LLC is a certified small, minority-owned business according to the SBA for NAICS code 236220. We are an experienced federal contractor completing projects ranging between $500K to $22M. We have completed complex projects involving SCIF Facilities and are very familiar with Design-Build processes.
We can assist large businesses to fulfill their small business participation goals by offering construction management concerning divisions/trades as well as fulfilling key roles on your team. We’d love to work with large companies seeking business partners at all levels.
We are also interested in working with private clients to begin bidding or completing your next construction project. We will seek out other small businesses to also utilize on your next project since we know how important it is to support small businesses.