Small Business Administration officials have released an early draft of a published report that documents inaccuracies in the reporting of small-business contracting dollars. But it does not document deliberate fraud as an activist who had fought for the report had hoped it would.

SBA had released a final version of the report in late 2004, showing that of the top 1,000 contractors receiving small-business contracts, 44 could not be accurately classified as small. The report, conducted by Eagle Eye Publishing, concluded that 39 of the 44 were large businesses, and five were classified as other. The miscoding in fiscal 2002 caused officials to inaccurately report $2 billion as small-business contracting, the report concludes.

Eagle Eye originally filed the report in 2003.

The report and SBA officials avoided trying to identify the causes of the inaccuracies, citing several possible reasons without delving further. Lloyd Chapman, president of the American Small Business League, filed a Freedom of Information Act request and then a lawsuit demanding earlier drafts, which he believed showed evidence of deliberate fraud that SBA officials removed from the final version. A judge ruled in Chapman's favor in May.

The draft document does list vendor deception as one possible cause, a consideration that does not appear on the list of possible reasons in the final version. However, the draft is equally inconclusive about which of the possible causes are likely to be true.

"The study does not attempt to assign blame or prove guilt but rather describe the scope of the small-business coding problem in order to improve contract data reporting," the draft report states.

Chapman said he believes SBA has not yet released all of the documents he wants, and he plans to continue pushing for more.

John McDowell, press secretary at the SBA's Office of Advocacy, said Chapman is looking for something that isn't there.

"All of our edits were designed to eliminate speculation and produce a quality report that was grounded in sound data," he said. "It is disappointing that [Chapman's] only reaction to an original draft that does not contain a smoking gun was to allege that the Chief Counsel for Advocacy violated a court order by releasing the wrong document."

One speaker's company can provide the government with teachers of 90 different languages. Another, who owned a Rockville biotech start-up, was concerned about competitors backed by wealthy venture capitalists. Others were trying to sell federal agencies office supplies or software or accounting services.

They had one thing in common: concern that proposals to rewrite the federal definition of what constitutes a "small business" could hurt their access to federal grants, loans and contracts.

Representatives of about 90 Washington area companies testified at a Small Business Administration hearing yesterday on whether the agency should change its system for determining which companies qualify for its programs to ensure that larger, more established firms don't participate. A proposal last year to base the determination largely on the number of employees was dropped after a storm of criticism, which prompted the SBA to schedule 11 hearings around the country to help shape a new size standard.

William C. Joern, vice president of the International Center for Language Studies Inc. in the District, said his company doesn't favor defining size by number of employees because the payroll fluctuates with the needs of government clients such as the Pentagon, State Department and FBI -- hardly a guide to the long-term size and solidity of his company.

Caroline Y. Watler, president of Circle Solutions Inc. of McLean, which has about 100 employees and a contract to run an information clearinghouse for one of the National Institutes of Health, said her company "wouldn't be eligible for 80 percent of our work" if a 50-employee limit were imposed for her field. "I hope you encourage us rather than put us out of business," she said.

Other speakers expressed more general concern about the trouble small companies have getting any government business at all. Johnny L. Brooks, managing director of Brooks & Associates LLC, an accounting firm in Largo, suggested that the agency consider a "micro" category for businesses such as his with less than $500,000 a year in revenue.

Ulises V. Martinez of Fairfax's NOVUStar LLC questioned why so many companies seemed to stay "small" for so long. Danny Trehan, sales manager of Sita Business Systems Inc. of Chantilly, said agencies are buying the office equipment he sells from large firms such as Staples. That leaves him wondering, "What am I doing here?" he said.

Gary M. Jackson, the SBA's assistant administrator for size standards, said after the hearing that the speakers reminded him that it's difficult to "draw the line" that will define "small" for the 180,000 businesses around the country registered to qualify for government set-aside contracts.

The agency was criticized last year when its inspector general found that many giants of the contracting world were listed as getting small-business contracts. Jackson said that the findings didn't allege fraud but that they demonstrated a need to change the rules for situations where long-term contracts let a small company grow past revenue size limits.

He said it probably will be the end of the year before the SBA puts out another proposal on the size standards.

The hearings also considered how an infusion of venture capital affects small businesses.

Jonathan Cohen, president and chief executive of 20/20 GeneSystems Inc., said the agency should keep the rule as is: Companies with majority venture-capital ownership are barred from seeking Small Business Innovation Research (SBIR) grants.

Changing the rules to let the venture capitalists in, Cohen said, "could do great harm" to the biotech industry by siphoning money from smaller firms that don't have venture capital support -- often the very ones most likely to produce innovative devices and drugs.

Opponents of the current rule argue that many small innovative companies need access to both venture capital and federal grants to survive. "Bioscience companies tend to be doing a lot of cutting-edge research projects, and very often the funding they get from VC's they need to fulfill their near-term goals," said C. Robert Eaton, president of MDBio Inc., an organization of Maryland biotechnology firms. Federal grants "are a very important alternative source of funding for . . . longer-term research projects," he said.

Sen. Christopher S. Bond (R-Mo.) reintroduced legislation that would repeal the restriction, imposed in 2003 after an SBA administrative judge decided that venture-owned firms did not qualify as small businesses.

Gerard J. McGarrity is among those who hope the restriction will be lifted. Because of the rule, his Gaithersburg biotechnology firm, Intronn Inc., lost a $600,000 SBIR grant it had been using to develop a treatment for cystic fibrosis. In 2003, the 16-employee firm got an infusion of venture capital that put it past the 51 percent ownership rule; as a result, the SBIR money was yanked.

"It was one of our earliest projects, and we simply had to cancel it. And we thought we had been making great strides in offering a new and innovative therapy for the disease," McGarrity said.

Godwin Opara is paying close attention to the U.S. Small Business Administration's move to redefine what constitutes a small business.

Opara owns Transtecs Corp., a Wichita business that does work for the Department of Defense. A new SBA definition of small businesses could have a big impact on his work -- and his bottom line.

His designation as a small business helps him get and keep contracts with the federal government. Businesses must meet size standards to qualify for SBA loans, too.

The SBA is currently holding meetings around the country to determine whether to change size standards for small businesses.

Officials predict that the federal government will spend $400 billion on goods and services in fiscal year 2004, up from $280 billion in fiscal year 2003. Some 77 percent of federal contract dollars go to large businesses, and 23 percent to small businesses, SBA spokeswoman Iris Newton said.

Currently, the SBA determines small-business status either by a company's gross annual revenues averaged over a three-year period or by the company's number of employees.

How companies are measured depends on their specific industry.

"The size standard is very essential in our industry," said Opara, whose business provides information technology, engineering and logistics services. It also has a manufacturing division.

For its services, Transtecs' small-business status is determined by gross annual revenue. In his industry, the limit is $6 million, which Opara said his company has exceeded.

For its manufacturing work, Transtecs' status is determined by number of employees. A business in his industry can have as many as 1,500 employees and still be classified as small. Opara has 200 workers. That means he competes with much larger companies for government contracts.

The SBA is holding public hearings across the country about the size standards. The closest to Wichita was in St. Louis.

But Opara still is paying attention.

Other small businesses should as well, said Elizabeth Auer, district director of the SBA in Wichita.

"About 97 percent of businesses in Kansas are currently classified as small," Auer said. A redefinition of standards "could have a big impact."

The changes haven't been ironed out, but it looks as though the SBA is looking to use the number of employees at a business, rather than revenue, to determine small-business status.

"Very few will be based on the gross revenues now," Auer said.

Some businesses could benefit from new size standards, making them eligible for contracts they previously weren't. Some could lose their ability to bid on contracts.

Opara would benefit if the SBA increased the gross revenues or reduced the number of employees in his industry standards.

Opara would like to see his industry size standard top out at 400 employees.

Auer said the last public hearing about size standards will be June 29 in Los Angeles.

The SBA will compile public comment about the issue and then come up with a recommendation.

"I would expect that across the country they'll get a lot of the same comments," Auer said. "I would hope that they would come out with a new proposed regulation in a few months."

Area small-business owners who wish to comment may contact the SBA in Wichita at 269-6616. Small-business owners also may want to talk to their congressional representative.

Size matters to the federal government, but defining size is no small matter.

At stake are billions of dollars in government contracts and loan guarantees, along with the survival of the businesses that depend on them.

The U.S. Small Business Administration held a public hearing Tuesday in Denver, one of 11 cities it is touring, on revamping its size standards.

The SBA defines "small" across more than a thousand industry classifications, juggles 37 size levels and measures size in terms of employees and revenues, said Gary Jackson, assistant administrator of the SBA's Office of Size Standards.

It could be another two years before a new, more simplified set of standards comes into place, he said.

"Everything is on the table," Jackson said.

The federal government must direct 23 percent of its procurement dollars to small businesses, which also have access to government guaranteed loans.

But SBA critic Lloyd Chapman, president of the American Small Business League, argues corporate giants siphon off billions of contract dollars each year set aside for small businesses.

A study last September from the Center for Public Integrity found that 30 percent of defense contract dollars reportedly going to small and minority businesses actually ended up in the hands of top defense contractors, he said.

"They are able to gobble up the opportunities that should be going to small business," testified Lloyd Lovell, head of LFL International, a small Denver construction firm.

That most often occurs when big companies acquire small businesses and keep their contracts, which can stretch for 20 years or more.