Politicians love to talk about small business being the backbone of the American economy. They feel so strongly about giving the "little guy" a fair shot at government contracts that there is a regulation requiring 23 percent of federal contracts to go to small businesses each year.

With the feds awarding approximately $314 billion in such contracts annually, that adds up to a sizable chunk of change for the nation's small-business owners.

According to the government's definition, small businesses have fewer than approximately 500 employees (although the limit can vary depending on the industry). Retail companies generally can have average annual receipts of $6.5 million or less to fall into the small-business category.

So why did companies such as Wal-Mart Stores Inc., Exxon Mobil Corp. and Google Inc. all receive federal small-business contracts in 2005?

That question is at the heart of a report released Wednesday by Democratic congressional investigators. The report says that at least $12 billion in federal contracts that supposedly went to small companies last year instead went to companies such as Microsoft and Rolls Royce.

In many cases, investigators found, government agencies simply classified the companies as small businesses and no one questioned it. That is one reason why the Small Business Administration was able to report last month that 25.4 percent of federal contract dollars in 2005 went to small businesses - well above the 23 percent requirement. But investigators say that figure drops to 21.6 percent when larger, ineligible companies are weeded out.

The report prompted U.S. Rep. Nydia Velazquez, the top Democrat on the House Small Business Committee, to ask the Government Accountability Office as well as internal watchdogs for the State, Treasury, Defense and Transportation departments to look at their contracting procedures and determine if criminal activity is involved. Representatives of large companies who falsely claim to be small businesses can face up to 10 years in prison, $500,000 in fines and a permanent ban from doing government business under federal law.

While outright fraud may play a role, the larger problem appears to lie in federal agencies simply being lax in oversight. Investigators found thousands of contracts to big companies were miscoded as going to small businesses. Other small businesses grew larger or were purchased by corporate giants but still received small-business contracts.

WASHINGTON – Billions of dollars in federal contracts that the government says it awarded last year to small businesses ended up in the hands of large companies, many of them defense contractors and other Fortune 500 firms, according to a report released Wednesday by Democrats on the House Small Business Committee.

The report says that $12 billion in contracts given to large companies have been miscoded as small-business awards, allowing government agencies to give an inflated picture of procurement numbers and count awards to such business giants as Google, Wal-Mart Stores and Los Angeles-based Northrop Grumman toward their small-business contracting goals.

Legitimate small businesses are losing out in the process, said Rep. Nydia M. Velazquez of New York, the committee's top Democrat. "Small businesses are the innovators, the job creators in our economy," she said, "and we're shutting the door on them."

Awards identified as going to small businesses included $90.6 million to Northrop, the report said.

Others included $5 million to AT&T, $2.2 million to Rolls-Royce, $2.3 million to Home Depot and nearly $8 million to Lockheed Martin. Google's awards totaled almost $60,000; Wal-Mart's, $14,242.

Under federal law, the value of contracts given to small businesses each year must be 23% of the total awarded to all firms. The definition of a small business varies by industry. Manufacturing companies typically have fewer than 500 workers, and service companies generate less than $5 million in gross annual receipts, according to the House Small Business Committee.

Last year, according to the Small Business Administration, small businesses won $79.6 billion, or 25.4%, of the $314 billion awarded in federal contracts. But the Democrats' report noted that if the $12 billion in small-business awards that actually went to large companies is subtracted, the percentage requirement was not met.

The Democrats' investigation echoes the findings of several reports from the SBA inspector general's office that, for years, large businesses have received small-business awards in a variety of ways. The SBA has identified flaws in the procurement process as one of its top management's challenges this year.

In the cases cited in the report, federal agencies miscoded contracts to large companies as small-business awards. The SBA has also found that large companies have misrepresented themselves to the SBA or used fraud to gain contracts, and that some companies that began as small businesses have grown or been bought by larger companies but retained their small-business status.

"As a large business, we do not seek any dollars intended for small businesses," Gustav Gulmert, a spokesman for Northrop, said in a statement. "We have worked with the Small Business Administration to ensure that company information is updated in a timely and accurate manner, and we will continue to do so."

Gulmert noted that his company had "awarded more than $3.8 billion in subcontracts to small businesses in 2005, nearly 40% of its total subcontracting dollars."

Sen. John F. Kerry of Massachusetts, the top Democrat on the Senate Committee on Small Business and Entrepreneurship, said these falsely awarded contracts were "an extreme abuse of administrative oversight."

Representatives of large companies that claim to be small businesses can be punished with up to $500,000 in fines and 10 years in prison.

(Bordallo PR) - Guam Congresswoman Madeleine Z. Bordallo participated in a press conference today called by Congresswoman Nydia Velázquez (D-NY), the Ranking Democrat on the House Committee on Small Business, to announce the release of "Scorecard VII."

Scorecard VII is a report that shows that the federal government failed to meet its small business contracting goal for the sixth consecutive year.

Congresswoman Bordallo voiced support for the work done by Congresswoman Velázquez to produce this report, the seventh annual contracting "Scorecard" report.

The federal marketplace today, which is worth upwards of $314 billion, is the world's largest buyer of goods and services. The Scorecard VII report finds that federal contracts to small business, however, are not keeping pace with the overall growth of the federal market. Many federal agencies have fallen short of meeting mandated small business contracting goals, according to the Scorecard VII report.

"This report is the only comprehensive study of its kind to monitor federal agencies' achievements toward attaining small business contracting goals," Bordallo said. "As this report released today reveals, America's small businesses are being shortchanged."

Congresswoman Bordallo expressed particular interest in the report's findings regarding Department of Defense (DOD) performance contracting with small businesses.

"DOD has reduced its small business contracts by 65% from 2004 to 2005, despite a 13% increase in total contracting during that same period of time," Bordallo said. She pointed out that, "$8 billion of DOD contracting money was provided to large businesses, but listed as going to small businesses."

With regard to DOD, the Scorecard VII report released today reveals that DOD contracting represents approximately 75% of the federal marketplace, and buys more goods and services than every other agency combined. But DOD awarded contracts totaling $8.2 billion to large companies miscoded as small businesses, the highest dollar value of any federal agency.

Scorecard VII found that in fiscal year 2005 nearly $12 billion dollars had been miscoded by all federal agencies combined as award to small business awards, when the contracts actually went to large businesses.

Democrats on the Committee on Small Business called on the U.S. Government Accountability Office (GAO) to investigate whether or not these large businesses are intentionally certifying themselves as small businesses.

In addition, Democrats are requesting that the Inspector Generals for the four agencies which had the most incident of miscoding - the Departments of Treasury, Transportation, State and Education - conduct investigations to determine if their contracting officers are utilizing miscoding to meet small business goals.

Congresswoman Bordallo said that, "America's small businesses deserve fairer treatment in the federal market place than they currently receive."

Congresswoman Bordallo's participation in today's press conference represents her continuing efforts to encourage an increase in small business federal contract awards to Guam-based small businesses.