Small businesses lose out on hundreds of millions of dollars in Energy Department contracts each year because the government often gives no-bid work to large firms on flimsy grounds, congressional auditors say.

A report by the Government Accountability Office, obtained Thursday, looks at small business contracting practices at the department, whose $22.8 billion in annual awards for research, nuclear weapons maintenance and environmental cleanup make it the largest civilian contracting agency.

The report says the agency failed to meet small business contracting goals of 5.5 percent or lower in four of the last five years due to lack of controls, poor planning and questionable assumptions that smaller firms couldn't handle the jobs.

The Energy Department "is clearly constrained by the department's traditional reliance on a limited group of large firms and universities to manage high-cost projects in which public safety and national security are important concerns," says the 39-page report, scheduled to be released next month.

The audit comes amid increased scrutiny of federal contracting, particularly in the Hurricane Katrina response and rebuilding effort. Earlier this month, the GAO found the government wasted millions of dollars on 13 major Katrina contracts most of which were awarded based on limited bids that went to large firms with extensive government ties.

"This administration gives big businesses all the breaks and gives small businesses the shaft," said Sen. John Kerry, D-Mass., the top Democrat on the Senate Committee on Small Business and Entrepreneurship, when asked about the report.

"We need to break down big contracts so small businesses can get a piece of the federal pie," he said. "This is evidence of a systematic failure by the Bush administration to look out for small businesses, let alone level the playing field."

Craig Stevens, an Energy Department spokesman, said the agency has been working hard to consider small businesses for contracts to the extent it can. In some areas, such as laboratory and research contracts, the work "just isn't conducive to small business," he said.

"We believe we are taking significant strides in encouraging and retaining small business owners in the work of the department," Stevens said.

According to the GAO report, Energy officials gave small firms work mostly in dwindling, noncore areas such as legal services and construction, rather than research and waste cleanup, where most of the contract dollars lie.

Small firms also were typically given subcontracts, which are labor-intensive but much less profitable because of the cuts taken by the large prime contractors.

As a result, the agency missed contracting goals in four of the last five years, leading to missed opportunities for small businesses totaling more than $970 million, auditors said. The exception was 2003, when the Energy Department beat its goal, resulting in an $84.2 million "surplus" in contracts for small business.

Meanwhile, most of the core work was awarded to large entities such as the University of California system, which operated the Los Alamos National Laboratory under a no-bid contract for decades until it was reopened for bidding last year following security lapses. In rebidding, the university won the contract again.

In recent years, about one-third of total contracts were handed out on a no-bid or limited competition basis, according to the Federal Procurement Data System government database, although that number is improving.

The GAO noted that the Energy Department had made strides in awarding prime contracts to small businesses. But in many cases, the department said it did not consider the goals a priority, citing concerns about small firms' performance while providing little information or evidence to document why.

"If DOE can combine its small business improvement efforts with a clear strategy for achieving its annual goal, ... and with program evaluations that help to identify problems, DOE can more credibly demonstrate that even if it continues to fall short of its prime contracting goal it has done all it possibly can," the report said.

Other findings:

The agency's outreach programs have failed to achieve clear results. For example, the pairings of large and small firms in a mentor-protege program increased from five in 2002 to 48 in 2005, but only one participating small business has subsequently received a prime contract from the Energy Department.

A statement circulated by a California small business group earlier this week has ignited a controversy over a Senate subcommittee hearing on the effectiveness of the Small Business Administration scheduled for next week.

The small business group claimed that the hearing signals a move toward abolishing the agency. But the senator planning the hearing called that statement misleading and said SBA officials may have engaged in illegal attempts to lobby against the oversight event.

The office of Sen. Tom Coburn, R-Okla., chairman of the Senate Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management, issued a statement saying it had "received indications that officials from the SBA itself may be engaging in lobbying activities against this hearing. Federal law (31 U.S.C. 1352) clearly prohibits federal agencies from using taxpayer funds to engage in lobbying activities intended to influence Congress directly or coordinated with intermediaries."

SBA spokesman Mike Stamler denied the agency's involvement in such activity. He said agency officials will testify at the April 6 event on the "positive effect SBA programs have" in helping small businesses and "about the efficient use the agency makes of taxpayer dollars."

But John Hart, a spokesman for Coburn, said the senator's office received confirmation of the lobbying effort from Oklahomans who were contacted by SBA employees in an attempt to put political pressure on the senator. Hart said Coburn has evidence of these actions, but declined to share it, citing a need to protect the identity of the individuals who provided the information.

A tentative witness list for the hearing, provided by Hart, includes SBA Administrator Hector Barreto, William Shear of the Government Accountability Office, Southern Illinois University professor Jonathan Bean, former small business owner John Pointer and Veronique De Rugy, an adjunct scholar at the American Enterprise Institute.

It's the participation of De Rugy that has angered the American Small Business League, a Petaluma, Calif., group formed in 2002 to promote policies that help firms with fewer than 100 employees. De Rugy has advocated the abolition of the SBA and the elimination of small businesses set-asides in government contracting.

In an interview with Government Executive, De Rugy confirmed that she is in favor of eliminating the SBA and small business set-asides, but said she believes that lower taxes and fewer regulations would create an environment where small businesses can flourish.

"If they read what I wrote, there's no way they could say that I am anti-small business," De Rugy said. "I propose an alternative to SBA."

Lloyd Chapman, president of the California group, said the invitation to De Rugy is an indication that Coburn is out to shut down the SBA.

Chapman said he learned about the hearing from friends who work in Congress, not SBA officials.

Coburn's office, which had yet to announce the hearing when Chapman's group circulated the message denouncing it, maintained that the statement includes "a false and deliberate distortion" of the purpose.

The group's statement was titled: "Oklahoma Senator Calls for Hearing to Abolish Small Business Programs."

A Fortune 1000 company's subsidiary has agreed to pay the federal government $1 million to settle allegations that it falsely represented itself as a small business for inclusion on a General Services Administration contracting schedule, the Small Business Administration announced Tuesday.

The government brought its complaint under the False Claims Act against Insight Public Sector, a Tempe, Ariz.-based company specializing in information technology products and services and formerly known as Comark Government and Education Services.

The SBA and GSA inspectors general, together with the Justice Department, conducted a two-year investigation into the company at the urging of American Small Business League president Lloyd Chapman, said Glenn Harris, an SBA spokesman. The investigation found that the company had misrepresented its size on a 1996 application for inclusion in GSA's Multiple Award Schedule, and continued to operate under that designation when it changed names in 2002.

The $1 million fine was "a good settlement for the government," Harris said. He did not know how much business the company had received as a result of the misrepresentation.

Justice Department spokesman Charles Miller also declined to give the value of orders placed under the false designation. He said settlements under the False Claims Act are typically three times the damages, but in this case, the fine was negotiated by the parties.

Chapman said Insight Public Services was one of three companies he had brought to SBA's attention in late 2002 for possible size misrepresentation. "I sort of came to the conclusion that they weren't going to do anything, to tell the truth," he said.

Such delays, as well as rules that favor large businesses in federal contracting, and incentives within the federal government to appear to be in compliance with small business contracting goals, make it uncommon for companies to be held accountable for size-related fraud and abuse in federal contracting, Chapman said.

"I'm glad to see the government take some action to stop firms from illegally receiving federal small business contracts; however, I think the fine is too small," Chapman said in a statement. "A $1 million fine is a drop in the bucket for a Fortune 1000 firm."

But SBA Administrator Hector Barreto said, "SBA takes very seriously the issue of false certifications of size status by firms seeking the benefits of government contracting, and fully supports vigorous and effective law enforcement in such matters."

The SBA inspector general's office released a report in February 2005 that found numerous problems with small business certifications and contracting.