In a testimony today before the U.S. House of Representatives Committee on Small Business, Subcommittee on Contracting and Workforce, Ronald M. Reim, AIA, executive vice president and a founding principal of St. Louis–based Oculus, argued on behalf of the AIA that the passage of H.R. 1429, the Stronger Voice for Small Business Act, could help small firms in the design and construction sector more effectively compete for federal projects. The legislation, introduced in March by Reps. Mike Bost (R-Ill.) and Gerry Connolly (D-Va.), would allow small firms to challenge size-standards decisions in the Small Business Administration (SBA)’s Office of Hearings and Appeals, rather than through a lengthy and expensive legal process.
In 2011, the SBA proposed imposing a single size standard to architecture and engineering firms alike, under the definition of "small business" for firms generating $19 million or less in average annual receipts. The standard would have included all but about two percent of architecture firms in the designation. Reim, whose own practice is classified as a small business under the current definition of $7.5 million or less in average annual receipts, argued that the rule would have significantly increased competition among firms for a shrinking pool of available work, and "essentially double down on one of the most pernicious aspects of the financial downtown," he said in the testimony.
In 2012, Congress passed the Small Business Protection Act, which limited the SBA’s ability to consolidate disparate industries into one size standard. With AIA’s backing, the SBA modified its original proposal, but it can still change its size standards without a timely review process. Reim testified today to urge the SBA to follow the intent of 2012 law as it conducts a five-year review process of the standards, ensuring that any adjustments are made to reflect current market conditions. “Even moderate changes to SBA definitions could have dire consequences for thousands of firms if an influx of disproportionately larger businesses were suddenly introduced into the marketplace,” he said.
In his testimony, Reim called architecture "the true embodiment of the spirit of small business entrepreneurism," because more than 95 percent of architecture practices in the U.S. employ 50 or fewer people, and about 63 percent of firms are comprised of four or fewer employees, according to the 2012 AIA Firm Survey. Although many are already designated as small businesses, raising the size allowance could reclassify mid- to large-sized firms as small practices. “David would now be classified the same as Goliath, yet competitively they would be very different,” Reim said.
While Reim said during the testimony that he hopes that the SBA will maintain the intent of its 2012 law, he also suggested two modifications. He urged the SBA to only count revenue that accrues to the firm, and not the revenue that is passed on to subcontractors, a current metric that could highly inflate a business’ cash inflow and result in a small firm being classified as a mid- to large-sized practice. Reim also encouraged the SBA to change the architectural standard for small business designation from receipts to employees to more accurately reflect the nature of the profession.
"A number of external factors have already driven up the costs of doing business for the architectural profession as a whole," Reim said. "Modifications to the SBA size standards would greatly exacerbate these problems and elevate the challenges we face to an untenable level."