The U.S. Department of Education (ED) Private Collection Agency (PCA) program remains an opportunity for small businesses despite recent wrangling over five contractor suspensions in March and a bid process for large (“unrestricted”) contractors still incomplete after two years.
The U.S. Small Business Administration (SBA) reported in a 2014 publication that more than 99% of the 28.2 million businesses in the United States are small, like most in the ARM industry. Opportunities for small firms include working as a direct contractor, like the ones awarded last September, or as a subcontractor to those or five other unrestricted contractors still working on “award term extension” contacts, which have a two-year term that started in April.
Obama Forms Small Business Task Force as the PCA Program Grows
The government-wide goal for small business utilization is 23%. The Obama administration issued a Presidential memorandum in 2010, calling for changes that appear to have helped ED’s small business utilization numbers since then. Since passage of Health Care and Education Reconciliation Act of 2010, which made most Federal student loans originated after then direct loans, the PCA program has grown, as more loans have gone into the program faster, making PCA expenditures a sizeable part of ED’s spending. In 2012, ED received a “C” grade in an annual scorecard published by the SBA. In the last two years, however, ED received an “A” rating, coinciding with the overall growth of the program, the inclusion of subcontracting in performance rankings, and the growth of those subcontracts.
Small Writing on the Wall
ED’s more recent focus on small business utilization was predictable. Goals have gone up over the last two years, with ED’s prime and subcontracting goals now at 20% and 33%, respectively. ED even indicated in its procurements that it intended to “increase its small business participation under the Default Collection Services’ contracts.” The eleven restricted awards more than doubled the prior field of five. Requirements for these to subcontract to other small firms is new also.
Large bidders in January were asked to commit to transferring a percentage of work to small businesses for the life of new task orders. The evaluation criteria valued this as one of only three factors against which ED would base awards. Don Taylor, President of Automated Collection Services, Inc., a large business in Nashville and a bidder, stated, “We’ve noticed that ED appears to be even more committed to including small businesses than ever before. We applaud the department and fully endorse participation of small businesses as contractors or subcontractors in the program.”
What is a Small Business?
As the winds shift toward small businesses, not all of them are created equal, and a firm’s annual revenue is just the beginning. Among other factors, a small business may not be affiliated with any large businesses to maintain that status. Businesses that purport to be small, which are not, can be challenged on their size. The SBA regularly determines businesses to be other than small if, for example, they share common management with a large business, if they were formed recently by current or former owners, officers, family members, or key employees of a large business, or if they have a large business as a client exceeding 70% of revenue. SBA recognizes many other forms of affiliation.
Subcontracting Opportunities for Small Businesses
Small business contracts awarded last year could last 12 years. But small businesses can do business with small PCAs, particularly those owned by women, disadvantaged individuals, disabled veterans, or those operating in a Federal HUBZone. “We have had the opportunity to complete an RFI so far, but have not yet found a partner,” said Asuncion “Mike” Munoz, President of Revenue Collection Bureau in Philadelphia, a Federal HUBZone-certified small business. “We are looking forward to competing for more opportunities.”
The five remaining large PCAs can also hire subcontractors. Some may not wait until new contracts are awarded. Keith Baker, a service-disabled veteran owner of Lien Enforcement, was asked about Federal mandates for PCAs to subcontract to such firms and said, “I think it’s great. For me in particular, it feels good to know that our government has taken these steps to ensure disabled veteran owned businesses are included, considering the sacrifices those veterans have made while defending our country.”
More PCA Compliance Woes
ED’s suspension of five PCAs this past March may foretell a new era of scrutiny for PCAs, one in which an error rate higher than zero for perceived compliance violations can result in suspension. PCAs also have a laundry list of things they must do in order to comply with their subcontracting plans to avoid breaching the contract or putting future contract awards at risk. PCAs must advertise subcontracting opportunities, for example, keep records of their outreach, and attend trade fairs offered by business development organizations offering sources for subcontractors, among a myriad of other things.
“We’re seeing more of a focus in these areas among our clients, both prime and sub,” said Leah Wilson Conger of Fed Cetera, a business development association that markets small firms to PCAs, consults with PCAs on subcontracting compliance topics, and holds periodic trade fairs to help small businesses get work in the space. “The most proactive PCAs are already contacting us to take a look at our members, and are doing what needs to be done to remain compliant in these areas.”
Whatever the PCA program is, it remains a massive employment source for thousands of American workers, many of whom have student loan repayment obligations to honor. With 48.5% of all private sector jobs held by people working for small businesses, it’s a good bet ED’s continuing need for PCAs and strategy to foster small business utilization will continue unabated in the coming years. Like other aspects of the program, it’s an opportunity with both risk and potential rewards for the many small businesses operating every day in the ARM industry.