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Tip of the Month for July 2013

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Tip: Watching Washington - U. S. Government Owes Small Businesses $3 Million in Back Fees

If you’ve been thinking about pursuing government contracts by getting in the “vendor catalog” for Government departments – otherwise known as the General Services Administration Schedule – you’d better read on. A recent story out of Washington shows how inclusion on the GSA schedule can be a double-edged sword for the small business owner, and how the persistence of the House Committee on Small Business recently ensured that small business owners will get what is owed to them under the recent GSA Multiple Award Schedule.

Following a yearlong investigation, the U.S. House committee has determined that the Federal Government owes some 1,281 small businesses a total of about $3 million. The fees represent guaranteed minimum sales that the government contracted to make to small businesses that had been approved to receive business under the GSA’s Multiple Award Schedule. Termination fees were put in place to encourage the government to contract with small businesses. These small businesses on the GSA schedule that had not received contracts worth at least $25,000 were guaranteed a $2,500 termination fee (minus any actual sales made to the Government).

The non-payment of these fees was discovered when the House Committee on Small Business looked at the impact on small businesses of the GSA’s plans to cancel some large future contracts. The review showed not only that the GSA was not taking these termination fees into account, but also that the GSA had not paid these fees since 2008.

The GSA has agreed to pay the termination fees owed to small businesses. As a result of the findings, changes to the way the GSA conducts business with small business owners are under way. The Administration also wants to improve communication and help small business owners understand what it takes to successfully win Government sales. These changes include:

  • not requiring contractors to request a guaranteed minimum payment;
  • educating small business owners to give them better information with which to determine whether to pursue inclusion on the GSA schedule or not; and
  • contacting those firms on the schedule that are struggling to meet minimum sales to see how to support their efforts to succeed.

Small business advisors note that selling to the Government is not for every business owner. Inclusion on the GSA schedule does make it easier and much faster for Government departments to work with a company, but inclusion doesn’t guarantee business. Not all businesses are equipped to deal with a large bureaucracy. It could cost a great deal of time and money to put a proposal together to meet GSA specifications. If a company doesn’t win sufficient contracts, it might end up costing more to solicit new business than the company makes in additional sales.

On the plus side, the majority of firms that get contracts through the GSA schedule are smaller businesses. The GSA is committed to contracting with small businesses and recognizes the benefits to the economy and to the U.S. taxpayer.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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