Hello everyone. Welcome back for Global Public Procurement. Today, we are going to talk about US government public procurement. Especially today topic is talking about the SBA, Small Business Administration. In session that we had before, when we talked about US government entity and department and agency, we briefly mentioned the importance of Small Business Administration and their function and how the small business provision work, what sort of small business exist, how they do that. But today, let's go in depth and then talk about the specific procedure, method of defining small business, and also their operation background, and all other important function. Any country, whether developed country, especially for developing country, and underdeveloped country, small businesses are very important part of any economic structure largely because a small business is the business that people get started as entrepreneur. It will take some time to build it up into medium and larger business. When you have 10 small businesses get started, and less than two or three will survive, then the one becoming [inaudible] later at one or two small number of the business entity starting from small business eventually will make to the larger company. Because the small business very closely related to the demographic spread of any country, so most of the country will have the policy on towards incentivizing small business in a way of helping them to participate any project funded and managed by the country. SBA in the United States and it's function play very important role for small business. US SBA is a key center administrative agency of US federal government based on US small business enterprise support Act or law launched in 1953. It goes back actually that long, and they realized that helping small business is a key agenda for national economic development. So US SME support small business according to their size, and their revenue, as I said number employee, and also their revenue, three years of revenue is one of their evaluation criteria. SBA also does a lot of other thing, for example, they have the Loan Program, Loan Guarantee Program, Contract Acquisition, and Education, other consultation program available as well. So one of the key function of SBA is defining and certifying small business in each category and then becoming their advocate to acquire more contract from federal government. The small business procurement budget allocation from US federal government budget is about 23 percent as I mentioned earlier. So more federal government agency participating to promote contract award to small business. There's small business based on couple of the major category such as women-owned, and the ratio based disadvantaged business, service disabled, and economically underutilized zones. So overall, we have a total of 23 percent plus total federal government acquisition dollar spent for small business. One of the sensitive issue. For defining small business is how they actually classify different industry with the size and number employee. As we studied before, US SBA use a two main criteria to define a small business, one is a number of employee, the other one for the revenue. Let's a look at the number of employee first. Number of employee depend on industry they're working with, what industry we're using for lower number of the employee versus higher number. More high-tech or advanced information communications technology involve, you will have a less number of employee needed and the other way around. Then what would be major evaluation criteria to define industry? We're using NAICS, North American Industry Classification System, code number as major criteria for defining different industry. I'll give you, for example, this is a six digit number with a different function and different category, for example, if I have a main section of 517 as an example, 517 is a telecommunication industry. If I use the 5171110, it is overall large telecommunication industry with 1110, three digit in the back, this will be wired telecommunication carrier, except satellite. That's industry classification. Let me use another example. If we use the 517210, that will be 517 in telecommunication industry, 2110 is wireless telecommunication carrier, except the satellite. Let's have a look at two example here. The first one was wired telecommunication, which is a landline, etc, second one is 517210 is wireless. We know that distinction between wired and wireless, so one is landline, the other one is basically an all over the mobile [inaudible] again, wireless WiFi, that is industry belong to a wireless telecommunication industry. From the example that we illustrate here, 5171110, 5172110, one is the wired telecommunication, the other one wireless telecommunication industry. For this two industry, US SBA define their size of small business when we define how many employee they have it. Number employee US SBA allocated is for, this industry, are 1,500. Each 5171110 wired telecommunication and then the wireless telecommunication, equally 1,500 employee, plus will be large business, less than 1,500 employee will be small business. One thousand five hundred employee in Korean standard is not really a small business, however, industry itself for US SBA's standard, it will be classified as small business. Then what about revenue then? If you have 5171110 as the wired telecommunication industry, how much revenue will be defined as a small business or will be large business? In this instance, the US SBA defines $32 million as a limit on telecommunication, wireless industry or wired industry, revenue. If you have more than $32 million revenue, you will be classified as a large business, or less than the revenue, you will be small business. Or you will have more than 1,500 employee, you will be considered as large business; less than 1,500, you will be a small business. You can see the sensitivity here because when you have more than 1,500 employee, if you can manage less employee and still maintain as a business category of the small business, that will give you huge incentive to remain as small business. But some of the small business certification would not give you very long time, for example, 8(a) Program will have a less year window of opportunity for the eight-year window because you only can apply for the 8(a) Program one time. You can't repeat the same thing over and over again, except for the HUBZone. As long as the company located in under which it lies, zone, you will be fine with that. But other business certifications, like women-owned, veteran, and these type of the small business, they can have it a much longer time, unless you do not meet their criteria in terms of revenue or whatever. You will still remain as a small business. Procedure and method of acquiring preferential SBA procurement contract by using a small business is great advantage for small business. One way is each category of small business, Women-Owned or 8(a) minority small business or disabled service Veteran-Owned business or Historically Underutilized Business Zone, so-called HUBZone Small Business company, each will have their ceiling. Ceiling, meaning if you want to have a contract acquired from Federal Government, Women-Owned business, you can ask for set-aside; set aside, meaning you can basically ask the government to allocate a specific contract to you, without going through open competition. So it will become sole source. When you become subject of a sole source, contracting officer will go through a very complicated procedure of validating you as a recipient of sole source contract. We call it sole source justification. This information may be a little bit too much for the students, not from the States, from different countries, especially in Asia. At least you know this sort of information is available; these are the benefits, what they can get; people that you know in the States or any business contact. So when you further develop your business concept in the United States, my recommendation was, before and now, same; you can work with this company and your partner to expand your operation. Because getting into contract with the US Federal Government directly, there are a number of benefits and then the negative thing you have to consider. Pros and cons, let's have a look at a couple of them as an example. If you are the prime contractor for US Federal Government, contract or any other public procurement contract, you will have opportunity to control everything from beginning to end, because you are the prime contractor. You can choose how, when, with whom you can work with a specific contract. Have task management control from beginning to end. Number 2, you will have a financial benefit because you are the prime contractor, you know all the cost calculations, cost-benefit, and the price and schedule is on your control. Therefore, you have opportunity to make a lot more money or save a lot more costs than working as a subcontractor. Number three, because you have control of your people, control of your task, you can plan well ahead of your contract period, as incumbent what you going to do next, because if you are not working as the prime contractor, you are heavily dependent upon other company, to dictate how you should do the business in the future. These are the clear benefit of what you can do, but these can be important and benefit. However, there is cons that we have to consider. One of the main difficulty working as a prime, is that you have to assume all roles and responsibility, because you have authority working as the prime contractor. That mean you have very specific legal obligation to perform the contract, responsible for all the auditing, responsible for any legal issue coming out of a specific contract. So that's a lot of risk involved, Operational risk, the Legal risk and the Financial risk. Let's have a look at the legal risk point of view. Legality for public procurement is very, very big issue. As I said earlier, you have to make sure all your things what you do, you must be qualify and legally qualified, and also you've got to have a legal fiduciary duty as the prime contractor. Make sure you follow the law, you comply with the rules and regulation, under federal acquisition regulation. Financially, you are in the risk of planning your own cash flow. For example, when you work in as a prime, your contract price is in million dollars, and you have to do a lot of mobilization. Before you ask in government to pay you million dollar, it'll take some time for you to prepare, that mean mobilization and then perform the contract. Then you [inaudible] out your performance in asking for the money, this issue the invoice. Normally, under the Federal Acquisition Regulation, US federal government will pay you after your performance and delivery done, and get paid within 30 days. However, if you consider period of your mobilization and planning, and also all other higher, after action review process and debriefing, it'll take at least 60 days, sometimes 90 day plus, before you getting any money. Therefore, working in the prime contractor sounds attractive, but you have a lot to consider for financial exposure, financial risk is there. So either you have to borrow the money from the bank before federal government pay your money, or you have to use a factoring the service where basically you pledge your invoice, and then getting discounted cash flow of fund. A third area that you have to consider is operational risk. When you're working as a prime contractor, you have to assume all the legal responsibility as the prime contractor, especially with the people you hire. Anything to do with the liability issue, it is actually crucial, sometime if you can't handle very well with the liability issue, for a work place safety and hence issue, you will have millions of litigation claim and charges. So it is very easy to wipe out all your profit, not to mention, cloning out company operation. So the benefit is there working as prime contractor, but there was so many other problem area, risk component is there. So if you flipped working as the prime contractor, if you're working as a subcontractor to prime, you can save a lot of operational risk or the risk assumed by the prime. You basically deliver your product or services, as per agreed terms in the condition. However, being the subcontractor, you will have a less margin to obtain. You don't have any control of your management for your contract obligation and all your life cycle for that specific contract, dictated by somebody else, in this instance it will be the prime. So these are the pros and cons of working as the prime contract and the subcontract. Using with SBA small business, if they can find a partner working as a prime contract of the US federal government, and you work for them this may be the best option you can choose in. So we look at it today, and the importance of sva function, how we can come up with a marketing strategy to working with the US SBA certified the small business as a prime contract as one of our partner, this may be the best economic benefit for the company from overseas trying to enter the US federal market price. The next session we're going to talk about the GSA, someone of specific contract. How did GSA contract will implement, and how to operate. Thank you.
