Small Business Set Aside contracts are exclusively awarded to qualified contractors by the Department of Defense. The purpose of these contracts is to limit competition to benefit small businesses that otherwise would not be competitive with much larger defense companies. To qualify, a small business must be certified by the Small Business Administration (SBA) and conform to details of the Federal Acquisition Regulations in FAR 19.5. There are several categories of qualified small businesses including special subcategories such as: disadvantaged (8a), women-owned, veteran-owned, disabled veteran-owned, and HUBZone located.
As an owner and seller of a middle market defense company, it is important to know whether the contracts that you are winning are due to your being a small business or because of an open competitive process based on your product or service, quality and delivery record, and cost. Similarly, it is vital to a buyer to verify during due diligence whether contracts were awarded based on competitive awards or because the contract was set aside for small businesses or special subcategories. Buyers become very skeptical of a seller’s projections if they are looking to be acquired by a business that will no longer qualify as a small business, if the seller has been relying on its small business qualification to win contracts.
In summary, if you are thinking about selling your middle market defense company, as part of your preparation, it is critical to thoroughly understand your reliance on the small business qualification and develop projections that do not rely on a continuation of that qualification after the business is sold.
Have a great Fourth of July!
Managing Director, Defense