SAN FRANCISCO -- The U.S. District Court for the Northern District of California has ordered the U.S. Small Business Administration (SBA) to release to the American Small Business League (ASBL) a draft report on the awarding of government contracts. The SBA report describes how large companies are improperly winning contracts in the Federal government's $60-plus billion small business contracting program.

'What is in this report that the SBA doesn't want the public to know?' asked Lloyd Chapman, president of the ASBL. 'Instead of spending six months in court trying to suppress evidence, the SBA should be working to stop big corporations from stealing small business contracts.'

In her April 29 ruling, Judge Susan Illston strongly rejected SBA arguments that the draft report was protected by exemptions in the Freedom of Information Act (FOIA), and ordered the SBA to produce the report within 21 days. The ASBL has been working for the release of the report for nine months.

The Small Business Act of 1953 directs that at least 23 percent of federal government prime contracts go to small business. But a host of abuses and loopholes allow large companies to get many of these contracts.

The report in question was prepared by Eagle Eye Publishers and delivered to the SBA on November 14, 2003. ASBL submitted a FOIA request to the SBA on July 6, 2004, asking for a copy of the report. The SBA refused, citing FOIA exemptions. The SBA released an edited version of the report on December 28, 2004, acknowledging that small business contracts had gone to such 'small businesses' as Raytheon Co., BAE Systems, Northrop Grumann Corp., Carlyle Group, Electronic Data Systems Corp., Booz Allen Hamilton Inc., Hewlett-Packard Co., and Buhrmann NV.

Although the edited version of the report released in December listed only 44 large companies receiving small business contracts in fiscal year 2002, the SBA in 2003 removed nearly 600 large businesses from its small business database after an ASBL investigation discovered them.

Investigations by the General Accounting Office, SBA Office of Inspector General and Center for Public Integrity have found fraud, misrepresentation and loopholes allowing large businesses to receive billions in federal small business contracts.

Small Business Administration officials are under a court order to release early drafts of a report that shows some small-business contracting money going to other types of businesses.

Officials could appeal the ruling, which was issued April 29.

The study showed that 44 of the top 1,000 small businesses were incorrectly classified. Of those 44, 39 were large businesses and five were nonprofit organizations or government entities. SBA officials released a version of the report in December 2004. They attributed the problem, which routed $2 billion of the $50.8 billion earmarked for small businesses in fiscal 2002 to other organizations, to mostly honest mistakes.

That explanation doesn't sit well with Lloyd Chapman, president of the American Small Business League. Long convinced that some large companies deliberately misrepresent themselves with a wink from SBA officials, he filed a Freedom of Information Act (FOIA) request July 6, 2004, asking for a copy of the then-unreleased report. SBA officials refused, according to court documents.

Chapman filed suit in the U.S. District Court in the Northern District of California Oct. 6, 2004, seeking to force SBA officials to release any and all draft reports related to the study. Eagle Eye Publishers conducted the study under contract to SBA, and first filed their report with the agency in late 2003.

Legal maneuvering continued through the second half of 2004, and SBA officials argued that the original Eagle Eye report was "predecisional," and therefore exempt from FOIA disclosure, according to the court decision. Chapman said he believes that earlier versions might show evidence of fraud that SBA officials scrubbed from the final version.

The judge disagreed with SBA's position and ordered agency officials to produce the report by May 20, according to the court document.

Chapman said SBA officials have reason to classify more businesses as small because they can more easily meet the Bush administration's small-business contracting goals that way.

Paul Murphy, president of Eagle Eye, said SBA should not have to release more documentation.

"I don't think agencies should be forced to release drafts of internal or contracted research," he said. "A published government study should be able to stand on its own merits."

He took issue with Chapman's characterization of the SBA going easy on fraud, and said that his study was intended to show how information about small-business status is handled, not to identify the reasons that companies are incorrectly coded.

"Determining fraud was well outside the scope of the analysis," he said.

SBA has begun monitoring entries in the Central Contractor Registration to make sure businesses are what they claim to be.

Effective April 22, the agency said, small businesses are longer able to self-certify on the CCR database as a small disadvantaged business, 8(a) or HUBZone business. SBA will mark the business fields in the CCR to indicate whether a business is certified in those categories.

In another move to improve the accuracy of the database and combat fraud, SBA will use an automated function to examine a company's Trading Partner Profile and make sure it satisfies the size standards to qualify as small in its NAICS codes.

Small businesses registering or updating their profiles in the CCR will be presented with a fraud and misrepresentation acknowledgement statement listing the penalties imposed for misrepresentation.

Studies by the Government Accountability Office, the Center for Public Integrity and Eagle Eye publishing have found many large contractors being identified as small businesses in official records, artificially inflating the small business share of government procurement. Eagle Eye reported that $2 billion of the $50.8 billion credited to small businesses in fiscal 2002 went to large corporations, nonprofit organizations, government entities or other organizations.

"This upgrade to the CCR database will improve upon the accuracy of the federal government's reporting of small business achievements and will allow the SBA to monitor and confirm the companies' small business status," said SBA Administrator Hector Barreto.

In December SBA began requiring small firms to recertify their eligibility if they merge or are acquired. (SAA, 1/7) The agency is still considering a proposed rule that would require annual recertification on GSA schedules and other multiple-award contracts, instead of the current requirement that companies recertify when options are exercised, usually ever five years. (SAA, 4/1)

Lloyd Chapman, president of the American Small Business League and a campaigner for tougher measures to track down large businesses posing as small ones, said the SBA actions are welcome, but don't go far enough. He said companies are still permitted to self-certify their capability statements and NAICS codes in the CCR, or to leave those fields blank. "This allows people to misrepresent themselves," he said.