John Kerry landed an easy punch in his debate Friday night with President Bush when he decried Halliburton Corp.'s abuse of bidding rules for federal Small Business Administration-controlled contracts.

If he's looking to open a major wound, Kerry should keep picking away at this issue. All signs point to a major scandal in how big corporations game the federal SBA contract rules to their advantage.

According to the San Francisco-based American Small Business League, SBA officials are sitting on a report that details widespread abuse of federal bidding rules. Lloyd Chapman, president of the Small Business League, called me on Friday (before the debate) to alert me to the fact that companies such as Dutch conglomerate Buhrmann are getting over on the SBA.

Buhrmann, located in Amsterdam, employs 26,000 people in 28 countries. But last year, the company received $50 million in small-business contracts.

``They are one example of hundreds of companies in the U.S. and elsewhere doing this,'' Chapman told me in a follow-up e-mail. ``This means that small businesses in Massachusetts are being cheated and losing millions of dollars in contracts meant for them.''

Others playing this game: The Titan Corp., a top defense contractor, and Level 3 Communications. Those and other large companies have benefited from Pentagon contracts set aside for small businesses under SBA guidelines. Indeed, the Center for Public Integrity says between 1998 and 2003, the Pentagon awarded more than $47 billion in contracts designated for small businesses to large-scale defense contractors.

Was Chapman's Friday phone call part of a coordinated campaign designed to get the most bounce out of Kerry's debate comments? Possibly.

He also noted a Dow Jones story from last week about the ASBL's effort to get the SBA fraud report - authored by the research firm Eagle Eye Publishers - released to the public. The SBA says the report isn't completed.

Still, the General Accounting Office has found similar abuses.

Either way, it appears the system is in dire need of reform.

{Other unrelated column stories not reprinted)

Novato resident Lloyd Chapman's ongoing battle with the U.S. Small Business Administration has taken another turn, with the small business advocate and former GC Micro executive filing a lawsuit against the federal agency and threatening to file another.

Chapman's American Small Business League, formerly the Microcomputer Industry Suppliers Organization, filed the lawsuit Wednesday in U.S. District Court in San Francisco in an attempt to force the agency to publicly release the results of a government study on small-business contract fraud. Chapman said he has exhausted other recourses under the Freedom of Information Act, and claims he knows the report shows rampant abuse of federal contracting regulations.

In a related and long-standing battle, Chapman said he will likely file another lawsuit against the agency to force it to release public comments about a proposal to change the size limits for companies classified as small businesses.

Chapman has been a staunch advocate of lowering the limit from 500 to 150 employees, saying small businesses shouldn't be forced to compete with big businesses in vying for government contracts. The agency has so far resisted lowering the limit, citing lack of public support for the change.

" The Small Business Administration is the worst enemy to small business this country has ever had," he said. "The SBA has essentially repealed the Small Business Act of 1951 for most people because they have enacted a series of policies that force small businesses to compete with some of the biggest companies in the world."

Eric Benderson, an associate general counsel for litigation for the agency, called Chapman's claims ridiculous.

" It would be totally contrary to the point of doing the report for us to not make it public - it is simply not finished and we will release it publicly when it is finished," Benderson said. "I can't be any more emphatic - it's going to be made public when it is finished.

" It is just going through a vetting process. The whole point of it is to make it public."

But Chapman says he spoke to the author of the report, Paul Murphy of Fairfax-based research firm Eagle Eye Publishers, which was hired by the SBA to conduct the report. Chapman said Murphy told him the report is indeed finished and does indicate fraud.

Murphy could not be reached for comment.

" All the research shows that this is rampant and widespread, and they're not prosecuting it," said Chapman, who also cited recent reports from the Government Accountability Office and the Center for Public Integrity that indicated fraud within the system.

" If it's true that the SBA is covering up fraud and is helping it to occur, that's a pretty serious federal crime," Chapman said.

Government officials have said the agency hasn't sought to punish big firms that are listed as small ones for the purpose of winning federal contracts, primarily because it hasn't had to. Companies found to be too large to qualify are simply taken off the list and are no longer in the running for small-business set-asides.

Chapman said the agency doesn't go far enough. He said fraud is a felony and should be prosecuted as such.

U.S. Rep. Lynn Woosley, D-Petaluma, is supporting Chapman in his fight on both fronts, according to her spokeswoman, Susannah Cernojevich. Woolsey could not be reached for comment.

Federal law requires the federal government to award 23 percent of the total value of its contracts to small businesses. The government issues several hundred billion dollars' worth of contracts each year.

Chapman said the government small business contract system is essentially riddled with three types of fraud: companies claiming to have fewer employees than they do to qualify; companies that lie about their specific line of business because of different small business size limits for different industries; and the federal government giving small business contracts to businesses it knows are larger than the size limits.

Benderson said Chapman's quest is misguided because the report would only focus on mistakes in the government's system to award contracts. "This study doesn't deal with fraud, it deals with how government agencies are counting their contracts," he said.

Big companies are able to qualify for small business contracts under the system. If a business is awarded a contract while it is classified as small, the business is considered small for the life of the contract.

The Center for Public Integrity found that the small business contracts won by the largest defense firms in the country from the U.S. Department of Defense amounted to $9.3 billion.

Chapman has spent the past 15 years in a fight with the government over what constitutes a small business, dating back to 30-employee GC Micro's struggles to win government contracts.

A small-business trade group sued the Small Business Administration on Wednesday, seeking disclosure of a report on the government's awarding of small-business contracts to big businesses.

"The SBA has had a report on small-business contracting since January but refuses to release it,'' said Lloyd Chapman, president of the American Small Business League, a Petaluma organization that advocates for companies with fewer than 100 employees.

"We believe its report confirms widespread fraud in federal contracts and that the SBA is covering up the problem.''

An association lawyer said, however, that the report is still being prepared and would be released when it was ready, probably in a couple of months. He also said it has nothing to do with fraud.

"This is not some secret conspiracy, just a study that we have initiated to make sure agencies have reported the number of contracts going to small business,'' said Eric Benderson, the association's associate general counsel. He said the lawsuit "sounds like a publicity thing.''

The suit, filed in U.S. District Court in San Francisco, accuses the association of illegally withholding a contractor's study on how often and why small-business contracts, legally limited to companies with 500 or fewer employees, are awarded to larger companies. Federal agencies are required by law to set goals of awarding 23 percent of their contracts to small businesses.

Chapman said the contractor told him the report was submitted in January. The suit said the trade group filed a Freedom of Information Act request for the draft document in July that was denied by the association.

Congress' General Accounting Office reported in May 2003 that large companies were receiving billions of dollars in federal contracts designated for small businesses. The primary reason, the office said, was that federal regulations allow a company to be considered a small business over the life of a contract, as long as 20 years, even if it has grown into or has been bought by a large business.

Last week, the nonprofit Center for Public Integrity reported that some of the Pentagon's largest contractors were classified as small businesses in at least half of their contracts.

The congressional study did not accuse contractors of fraud, but some members of Congress called for further investigation. Chapman said Wednesday the report his group is seeking would include information on the extent to which large companies misrepresented their size to win contracts.

A small-business trade group plans to sue the Bush administration in federal court on Wednesday, asking for release of a secret study on small-business contract fraud.

The American Small Business League says the Small Business Administration, a federal agency, has been sitting for months on a study that shows frequent abuse of federal contracting regulations. The group wants the study's data in the public domain.

"The report shows that there's fraud and abuse," Lloyd Chapman, president of the trade group, told Dow Jones Newswires Tuesday. "Someone needs to be held accountable for that."

The trade group said the SBA hired an Eagle Eye Publishers, an outside
research firm, to investigate whether and why large businesses were listed as small companies in federal records. Chapman says the study found a number of reasons behind coding errors, including deliberate fraud.

On Tuesday, the SBA acknowledged the study and said it isn't finished yet.
Spokesman Evan Keefer said he expected that it would eventually be released. "I was told that it was not ready," he said.

Trade group officials say they already have exhausted other avenues under the Freedom of Information Act. Lawyer Robert Belshaw said the SBA has offered legal reasons for withholding the study that he does not think will stand up in court.

"They have failed to disclose some documents which we feel we're entitled to. If not everything, then at least in part," said Belshaw, referring to the
statistics at the heart of the trade group's request.

The lawsuit will be filed in U.S. District Court for the Northern District of
California. The trade group is based in Sonoma County outside San Francisco.

Before adopting its current name, the group was known as the Microcomputer Industry Suppliers Organization.

Lack Of Enforcement History For Firms In Wrong Category

The SBA does not have much history of punishing big firms that are listed as small ones for the purpose of winning federal contracts. The American Small Business League says the agency has never pressed charges against a firm that was posing as a small business.

The SBA says it hasn't prosecuted any firms because it hasn't needed to. When companies are disqualified from winning small-business set-asides, they typically drop out of the running and there is no need to punish them further, Keefer said.

"We spend a lot of time verifying that these folks are indeed small
businesses," he said.

The trade group says the SBA doesn't go far enough to root out offenders. It says firms should be punished if they represent themselves as small businesses for any reason, not just for set-aside contracts. Otherwise, the government can't tell if it's meeting Congress-imposed quotas.

Chapman says the Small Business Administration has faced these kinds of
problems for many years. But he blames the Bush administration for not acting to fix them after the General Accounting Office, now the Government Accountability Office, found flaws in a recent review.

"They did not try to stop it," Chapman said.

Large businesses can legally receive small-business contracts in some cases.

For example, once a small business wins a contract, it often can retain its
status for the life of the contract, even if the business grows or is bought by
a big company.

"The government has created so many benefits for small businesses that
companies have an incentive to try to claim that status as a way of getting
business or returns that otherwise would be beyond their reach," said defense expert Loren Thompson of the Lexington Institute, a Washington think tank.

Analysts said changes in contracting practices may have exacerbated firms' tendency to hang onto their status as long as possible.