The standards used to judge whether a firm is small enough to qualify for federal set-aside contracts are becoming a source of tension between the Department of Defense and the Small Business Administration. An SBA review of the standards, which vary by industry, has been stalled since 2004. Frank Ramos, the head of the Pentagon's Office of Small Business Programs, says that the thresholds for a few key areas--manufacturing, business services, and construction--are now way out of date. For example, the magic number for business services stands at $6.5 million in annual sales. The typical defense contract will often push a firm of that size over the limit. For any future contract, then, the company no longer qualifies as a small business. That can create a problem not only for the business but also for the Pentagon, which has to qualify another business to replace the first.

The SBA may propose a new set of rules by the end of the year, although they wouldn't go into effect for some time. For Ramos, that's too long to wait. "I'm trying not to criticize the SBA," he says, "but to articulate the problem."