New SBA Rule Boon for Small IT VARs

Wednesday Jan 21st 2004 by SmallBusinessComputing.com Staff
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A new rule is scheduled to take effect this month, one that promises to open up new opportunities to value added resellers. One trade group says small VARs will benefit from better access to federal contract opportunities.

The U.S. Small Business Administration (SBA) established a new industry category for Information Technology Value Added Resellers (ITVARs) on Dec. 29, 2003. The new industry category is called "Other Computer Related Services," and has a North American Industry Classification System (NAICS) industry code of 541519.

NAICS codes describe what an organization is selling. Previously, value added resellers fell under the "Wholesale Trade Sector" industry category, along with merchant wholesalers, distributors, drop shippers, brokers and agents — and had a size standard of 500 or fewer employees.

Under the new rule, value added resellers are defined businesses that sell computer hardware, software and information technology (IT) services — and have a standard size of 150 or fewer employees. With the new classification in place, smaller value added resellers can better compete with larger firms bidding on providing federal agencies with computer-oriented goods and services.

The Computing Technology Industry Association (CompTIA), a trade association representing the interests of the IT industry, was among the organizations advocating a smaller employee size standard. John Venator, CompTIA president and chief executive officer, commended the SBA for establishing more reasonable eligibility requirements and size standards for federal IT contracts.

"Businesses with up to 500 employees are not small business in this industry," Venator said. "The average size of an IT value added reseller is 15 employees; and 88 percent of these businesses have 100 or fewer employees. Although these smaller resellers can be competitive in terms of quality and service, the margins in the industry often make it very difficult for them to compete with larger resellers."

According to SBA data, in 2001 and 2002, federal contracts totaling $925.7 million were awarded for IT equipment purchases and related services. Small businesses received about 30 percent of these contracts, approximately $281.4 million. By comparison, small resellers accounted for 45.5 percent of total industry sales during the same period. This discrepancy suggests that small businesses as a group are less competitive in the federal IT value added reseller market than in the private sector.

"This rule will level the playing field for small resellers, who will be able to pursue federal contracts without the fear of larger firms with substantially more resources unfairly competing for the business," Venator said. "The adopted changes will better assist small IT value added resellers in obtaining their share of federal contracts."

The SBA estimates that approximately $10 million to $25 million in additional federal contracts could be awarded annually to smaller small businesses under the new rule.

The new SBA rule also provides small technology resellers with access to federal small business financial assistance programs. The SBA estimates that approximately 1,737 small businesses could receive assistance as a result of the new rule.

CompTIA is a global trade association representing the business interests of the information technology industry. For more than 22 years CompTIA has provided research, networking and partnering opportunities to its more than 19,000 members in 89 countries. The association is involved in developing standards and best practices, and influencing the political, economic and educational arenas that impact IT worldwide.

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