Pasadena Company With 3 Employees Fights to Remain ‘Small’
With just three employees and $2 million in sales, Marcdan Foods Corp. considers itself a small business.
Which is why owner Sharon Cohen was taken aback when state officials informed her last year that her Pasadena company no longer qualified for a program that gives small businesses a leg up when bidding on state contracts. She’s even more surprised that her efforts to battle their decision have resulted in proposed legislation to change the state’s contracting rules.
And to think it all started with a load of tomatoes.
But first some background. California companies that qualify for the state’s Small Business Certification Program get a 5% price advantage when bidding on state contracts. It’s California’s attempt to level the playing field for small businesses to compete for state contracts, which totaled nearly $4 billion last year. In general, companies with less than $10 million in revenue and fewer than 100 employees are eligible to apply. More than 5,000 California businesses have been certified so far.
Cohen started her wholesale food company five years ago, got her small-business certification and won a $1-million deal to sell dried beans to the Department of General Services. She was preparing to bid on another contract when state officials last year informed her that her small-business status--and the coveted 5% bidding preference--had been yanked.
A handful of companies are decertified each year, often because they’ve grown beyond the small-business program’s sales and work force ceilings. But Cohen got tripped up by a lesser-known parameter. Her company reported a few thousand dollars in commission income for brokering some loads of fresh tomatoes for a Texas client. Turns out that state won’t allow companies that participate in the program to accept a nickel of commission income. That’s because they’re leery of big businesses gaming the system by using brokers or front companies to masquerade as small fry to win the 5% price advantage.
Cohen says she understands that concern. But with just a fraction of her income coming from commissions, she figured it was clear that wasn’t her main business.
“It didn’t matter,” Cohen said. “The state has zero tolerance.”
Most business owners would simply pack it in at that point. But Cohen set out to change the system, writing letters and making phone calls to every legislator she thought would listen. The result? State Sen. Hilda Solis (D-La Puente) has introduced a bill to allow small companies to make as much as 20% of their income from providing services as an agent or broker without jeopardizing their certified small-business status.
“We’ve gotten letters from other small businesses that [zero tolerance] is a problem,” said Bill Wong, policy consultant to Solis. “It’s something that needs to be fixed.”
Whether the bill becomes law remains to be seen. The Department of General Services, which is in charge of the Small Business Certification Program, is opposed to changing the zero tolerance rule.
The department recently recertified Cohen as a small business after she agreed to stop accepting commission income. But she says her first taste of lobbying has convinced her that even small companies can get the ear of legislators if they make enough noise.
