Oct. 15 After acquiring another company in February 1998, GTSI Corp. disclosed in its annual report that it had grown too large to win small business contracts from the federal government.

Yet a recent study found that between 1998 to 2003, the reseller of computers, software and other technology products was classified as a small business in winning U.S. Department of Defense contracts worth nearly $1.2 billion.

GTSI is hardly alone.

The Center for the Public Integrity, a non-profit, non-partisan organization that investigates public policy issues, found that in the past six years more than $47 billion in Department of Defense contracts designated as small businesses awards have gone to large companies.

In total, 30 percent of all defense contract dollars reported as going to small firms actually went to large companies, the center said in a report.

"It's almost as if the whole idea of small business is a convenient fiction that's promoted by both political parties," said Larry Makinson, a senior fellow who worked on the study. "A lot of the money that you would think is going to truly small businesses isn't."

The federal government has a goal of spending 23 percent of its contract dollars annually with small businesses. Government officials often say they reach that goal, though the center's study raises questions about their calculations.

Government figures show 23.6 percent of prime contracts, or $65.5 billion, went to small firms in fiscal 2003. Of that total, $42.8 billion was from Defense Department contracts.

Yet the center's study questions whether many of those contracts were truly won by small firms.

For example, the center found 737 firms that won at least $100 million in defense contracts between 1998 and 2003. Of those, 189 had at least half of their contracts designated as small business awards.

The center assumed that companies large enough to handle such a volume of business would be large businesses.

Defining a small business is not as easy as it sounds. Businesses fit into hundreds of different classifications, each with its own standard of what is small. As a general rule, the Small Business Administration defines small businesses as having less than 500 employees or less than $6 million in annual sales.

Makinson said some of the companies on the center's list might fit that definition, though GTSI was highlighted as a large company reaping small business awards.

Last year sales at Chantilly, Va.-based GTSI were nearly $1 billion and it employed 685 people as of March.

Two others companies identified in the study as having received a large number of small business contracts supplying ready-to-eat meals for the military. Ameriqual Group, based in Evansville, Ind., won $440.1 million in government contracts that were classified as small business awards during the six-year period, while Wornick Co. in Cincinnati won $561.4 million in small business awards during that period.

Officials from all three companies did not return calls for comment.

Some large companies, Makinson noted, appear to have a strategy of acquiring small businesses that have won government contracts. Other small firms grow so much they should no longer be counted as small businesses, but they are still considered small by the government.

The SBA proposed a rule last year that would require firms registered as small businesses to regularly re-certify their status. The agency expects the rule will be adopted soon.

Lloyd Chapman, president of the American Small Business League, charges government officials regularly ignore large firms that improperly classify themselves as small.

"What I've discovered here is a pattern of the SBA not taking big companies off the list and not prosecuting them," said Chapman, whose organization focuses on small business contract issues.

His group recently filed a lawsuit against the SBA to release a report that looked into small business contracting.

Eric Benderson, the SBA's associate general council for litigation, said the report will be released after a standard review.

SBA officials also said they investigate firms that may improperly be classifying themselves as small, though they couldn't say how many of those cases ended up being prosecuted.

"If you are knowingly not a small business and you certify you're small, that's fraud," Benderson said.

Still, Makinson noted there is little incentive among politicians and government agencies to police the size standards since that would likely result in the number of small business set-aside awards dropping.

"It's in the political interest of both parties to look like they're doing something in the interest of small businesses, Makinson said.

And agencies, like the Defense Department, are eager to please the politicians.

After acquiring another company in February 1998, GTSI Corp. disclosed in its annual report that it had grown too large to win small-business contracts from the federal government.

Yet a recent study found that between 1998 and 2003, the reseller of computers, software and other technology products was classified as a small business while winning Department of Defense contracts worth nearly $1.2 billion.

GTSI is hardly alone.

The Center for the Public Integrity, a non-profit, non-partisan organization that investigates public policy issues, found that in the past six years more than $47 billion in Department of Defense contracts designated as small-business awards have gone to large companies.

In total, 30 percent of defense-contract dollars reported as going to small firms went to large companies, the center said in a report.

"It's almost as if the whole idea of small business is a convenient fiction that's promoted by both political parties," said Larry Makinson, a senior fellow who worked on the study. "A lot of the money that you would think is going to truly small businesses isn't."

The federal government has a goal of spending 23 percent of its contract dollars annually with small businesses. Government officials often say they reach that goal, though the center's study raises questions about their calculations.

Government figures show 23.6 percent of prime contracts, or $65.5 billion, went to small firms in fiscal 2003. Of that total, $42.8 billion was from Defense Department contracts.

But the center's study questions whether many of those contracts truly were won by small firms.

For example, the center found that 189 companies that won at least $100 million in defense contracts between 1998 and 2003 had at least half of their contracts designated as small-business awards.

The center assumed that companies large enough to handle such a volume of business would be large businesses.

Hard to define

Defining a small business is not as easy as it sounds. Businesses fit into hundreds of different classifications, each with its own standard of what is small. As a general rule, the Small Business Administration defines small businesses as having less than 500 employees or less than $6 million in annual sales.

Makinson said some of the companies on the center's list might fit that definition, though GTSI was highlighted as a large company reaping small-business awards.

Last year, sales at Chantilly, Va.-based GTSI were nearly $1 billion, and it employed 685 people as of March.

Two other companies identified in the study as having received a large number of small-business contracts supply ready-to-eat meals for the military. Ameriqual Group, based in Evansville, Ind., won $440.1 million in government contracts that were classified as small-business awards during the six-year period, while Wornick Co. in Cincinnati won $561.4 million in small-business awards during that period.

Officials from the three companies did not return calls for comment.

Some large companies, Makinson noted, appear to have a strategy of acquiring small businesses that have won government contracts. Other small firms grow so much they should no longer be counted as small businesses, but they are considered small by the government.

The SBA proposed a rule last year that would require firms registered as small businesses to regularly recertify their status. The agency expects the rule will be adopted soon.

Lloyd Chapman, president of the American Small Business League, charges government officials regularly ignore large firms that improperly classify themselves as small.

"What I've discovered here is a pattern of the SBA not taking big companies off the list and not prosecuting them," said Chapman, whose organization focuses on small-business contract issues.

Awaiting report

His group recently filed a lawsuit against the SBA to release a report by an outside consulting firm that looked into small-business contracting.

Eric Benderson, the SBA's associate general counsel for litigation, said the report will be released after a standard review.

SBA officials also said they investigate firms that may improperly be classifying themselves as small, though they couldn't say how many of those cases ended up being prosecuted.

"If you are knowingly not a small business, and you certify you're small, that's fraud," Benderson said.

Still, Makinson noted there is little incentive among politicians and government agencies to police the size standards since that likely would result in the number of small-business set-aside awards dropping.
"It's in the political interest of both parties to look like they're doing something in the interest of small businesses," Makinson said.
And agencies like the Defense Department are eager to please the politicians.

"They always want to make Congress feel good," Makinson said. "That's where the money comes from after all."

President George W. Bush will be a shoo-in for the November election if the largest federal IT companies and their employees get their way.

As a group, these contractors in overwhelming numbers are supporting President Bush and other Republican candidates with their campaign contributions, with 62 percent of their total donations going to the GOP and 38 percent to the Democrats, according to an analysis prepared for Washington Technology by the Center for Responsive Politics, a nonpartisan Washington group that tracks campaign contributions.

The center tracked contributions of Washington Technology's Top 100 federal IT contractors as reported to the Federal Election Commission, including contributions of company employees, spouses, and political action committees. The Top 100 list, published annually in May, ranks the largest contractors based on their federal prime contracting IT revenue.

As of Sept. 13, the Top 100 contractors had given Republicans $13.8 million and Democrats $8.4 million for the contribution cycle that began Jan. 1, 2003.

"It's typical of corporate donations, because ideologically they prefer Republican policies, and Republicans have a majority" in Congress, said Anthony Corrado, a visiting fellow and campaign finance expert at the Brookings Institution, a liberal think tank in Washington.

The chief executives of these companies are even more emphatic in their support for Republican candidates, giving 79 percent to Republicans and just 21 percent to the Democrats. This includes donations by CEO spouses.

So far, the Top 100 CEOs have contributed $818,043 to the political parties and their candidates in the 2004 campaign, with $643,877 directed to Republicans. They have given $71,775 to President Bush and only $9,000 to Sen. John Kerry (D-Mass.)

Michael Dell, chief executive of Dell Inc., topped the list, giving $119,750 to Republican candidates and $5,000 to Democrats. Dell gave $6,000 to Bush, but nothing to Kerry.

Among the Top 100 companies, Verizon Communications Inc. was the No. 1 contributor to 2004 political campaigns. So far this contribution cycle, the New York company has given more than $1.6 million – almost $1 million to Republicans and $618,000 to Democrats.

"We believe in good public policy," said Kevin McLernon, Verizon's director of government relations. When making political contributions, Verizon considers politicians' stands on issues, such as health care, broadband policy and Internet taxation, of importance to the company and business in general.

"We use the PAC to support the elected officials who support our public policy agenda," McLernon said.

Following Verizon on the list of top contributors are defense giants Northrop Grumman Corp. ($1.6 million), Lockheed Martin Corp. ($1.5 million), Boeing Co. ($1.4 million) and General Dynamics Corp. ($1.3 million).

Although companies and their employees might give purely for ideological reasons, they also want to win support on policies and legislation that affect their businesses. And government contractors want to court the good will of lawmakers who control spending on their projects.

"As a general rule, most of these companies and executives give because they think they're going to get something in return, such as a seat next to a congressman at a dinner or a golf outing with a committee chairman.

Often contributions are solicited with that in mind," said Larry Noble, executive director and general counsel at the Center for Responsive Politics. "People give to buy access. They give to influence legislation," Noble said. "Lawmakers have a limited amount of time they can spend with people, and they are more likely to spend it with contributors." Many, but not all, companies on the list have political action committees, or PACs, which can legally give up to $5,000 per candidate per election in primary and general elections.

Corporate PACs tend to make contributions to both Republicans and Democrats, especially to congressional committee members who have jurisdiction over areas of interest to the companies, such as defense appropriations, the Brookings Institution's Corrado said.

"They have good relations with both sides," he said. "It's more practical giving than ideological."

The Giving Season
It comes as no surprise to campaign finance experts that a telecommunications company was the lead giver among Top 100 contractors. In 2000, AT&T Corp. was the top corporate donor, giving nearly $5.3 million dollars, $3.1 million of which went to Republicans. Congress and the administration regularly deal with a host of policies and regulations – such as spectrum allocation – that affect the telecom industry.

"Companies that are subject to being regulated to death will give [contributions] because the government tries to exercise too much control," said Todd Gaziano, director of the Center for Legal and Judicial Studies at the Heritage Foundation, a conservative think tank in Washington. "So naturally, they're going to give money if they think it will stop them from being regulated." Corrado also pointed out that many telecom companies provide in-kind communications services as contributions to the parties.

Not surprisingly, the next four largest contributors are defense companies.

Northrop Grumman, the second largest overall contributor, "supports those who support strong national defense," said Thomas Henson, the company's manager of media relations.

Lockheed Martin, the third largest donor, looks at five criteria when determining whether to give money to the Democrats or Republicans, said Steve Chaudet, the company's vice president of state and local government affairs. The company considers a candidate's position on national defense, high tech issues and broad-based business issues.

In addition, the company considers whether a lawmaker represents a district in which the company has a facility or in which employees reside, and whether incumbent candidates sit on oversight committees that have jurisdiction over areas of interest to the company, Chaudet said. Boeing spokesman Douglas Kennett said his company's concerns include free and open trade worldwide and issues relating to major federal clients such as the military services and NASA. The company supports elected officials that create an even playing field with Airbus S.A.S., Boeing's major commercial aircraft competitor.

Boeing also advocates a "just solution" to the Foreign Sales Corporations Program and its successor, the Extraterritorial Income Exclusion (FSC/ETI) tax provision to eliminate retaliatory tariffs on U.S. products by the European Union, and it supports a healthy domestic Export-Import Bank to help finance the export of U.S. goods and services to international markets, Kennett said.

"Boeing supports candidates at all levels who support broad issues of concern to our company, regardless of their political affiliation," he said.

A new report from a public interest group shows that 30 percent of defense contract money that agency officials said had been awarded to small businesses actually went to large firms.

The Center for Public Integrity documented the figures, highlighting an issue that has long been a sticking point for small companies and the Small Business Administration – loopholes in the rules that allow larger companies to take small-business dollars.

According to the CPI report, Defense Department officials awarded more than $47 billion in contracts designated for small businesses to companies that have each earned more than $100 million during the six-year period studied – 1998 to 2003.

There are a number of ways that large companies can get the small-business contracts, often without technically violating any rules. The CPI study, for example, refers to Titan Corp.'s acquisition of SenCom Corp. in 2000. Titan officials acquired the small company and its $176 million in contracts that had been meant for small business.

A new SBA rule set to go into effect in December would require companies to recertify their size status after an acquisition.

Companies that win contracts while small have long been able to retain the small status for the duration of the contract, which can be 20 years for General Services Administration schedules and some other vehicles. In recent months, SBA officials and others have wrangled about possibly requiring small businesses to recertify their size as often as one a year.
GSA and Office of Federal Procurement Policy officials have taken some steps that SBA officials have not followed so far, said Dave Nadler, a procurement attorney with Dickstein Shapiro Morin & Oshinsky LLP. GSA officials require business owners to recertify their company size every five years. OFPP officials require annual recertification of vendors on governmentwide acquisition contracts.

This week, a small-business advocacy group, called the American Small Business League, filed a lawsuit demanding that SBA officials release a report that ASBL founder and president Lloyd Chapman believes will reveal extensive fraud among government contractors.

" The Center for Public Integrity's study on contract abuse is just the tip of the iceberg," he said.