The Office of Management and Budget is taking steps to address the concerns of small businesses by developing a score card to focus agency attention on "unbundling" large contracts and designating a senior official to address small business issues, a senior official told lawmakers recently.

In an Aug. 3 letter to Sen. Olympia Snowe, R-Maine, chairwoman of the Senate Small Business and Entrepreneurship Committee, OMB Deputy Director for Management Clay Johnson laid out steps that the Office of Federal Procurement Policy will take to improve opportunities for small businesses to obtain federal contracts.

"I assure you the [OMB] remains firmly committed to providing maximum opportunities for small business in federal contracting," Johnson wrote, highlighting a March 2002 policy statement by President Bush that "wherever possible, we're going to insist that we break down large federal contracts so that small business owners have got a fair shot at federal contracting."

Johnson said OFPP would be directed to develop a score card, in consultation with relevant agencies and congressional committees, to hold agencies accountable for achieving small business procurement goals and to satisfy an initiative announced by the president in 2002 to reduce contract bundling. That practice, in which agencies roll several small contracts into one mega-contract, is a top complaint of small businesses because it makes it harder for them to qualify or compete for work with the federal government.

OMB also will consult with relevant agencies and committees on the possibility of adding the anti-bundling initiative to the quarterly President's Management Agenda score card, Johnson said. The procurement policy office will designate a senior official to take the lead on small business issues and to "aggressively explore" ways to increase staffing at the Small Business Administration's procurement center, he said.

Johnson said he would ask OFPP to prioritize efforts to develop rule changes that could guard against misrepresentation, miscoding and manipulation of the system through which businesses certify themselves as small for preferences in government contracting. That system has been widely criticized for counting deals with huge, international corporations toward small business procurement goals.

Johnson said he would report to Snowe by Nov. 15 on actions OMB had taken on these issues.

Jake Ward, Snowe's press secretary, said it was his understanding the committee had received the letter, though with key staffers away for the August recess he was unable to comment Friday afternoon on its contents. An OMB official said the letter was issued in response to concerns raised by Snowe during a confirmation hearing for Paul Denett, who the Senate approved as OFPP administrator earlier this month.

"It's substantive, but it's a letter, and it doesn't really deliver results until they follow through," said Angela Styles, former head of OFPP and now a government contracts attorney at the Washington law firm Miller and Chevalier.

Calling the letter "a good first step," she said "none of the things listed are minor," and real plans and actions would be required to accomplish them.

Styles added that the idea of adding contract bundling to the management score card was floated when the administration first looked at the problem, but political will at that time was lacking. "The most important piece of all of it is evidence of leadership at the top -- evidence that they're going to push back with agencies to make it happen," Styles said.

She said the easiest way to solve problems associated with small business size status would be to require companies to recertify their size annually, or whenever major business decisions like mergers or acquisitions affect it. "The rule changes are controversial. How long do you let a small business that became large be counted as small? Believe it or not, a lot of people believe you should be allowed to continue to count that as small," she said.

The debate over estate-tax reform in Congress has sparked a controversial dispute between the nation's largest small business trade group and one of the most outspoken small business gadflies.

The American Small Business League (ASBL) took issue today with a campaign by the National Federation of Independent Business (NFIB) that urges its members to lobby for passage of a bill to slash estate taxes.

"The NFIB and other estate tax foes allege that the tax will take half of a small business owner's wealth upon death. This is patently false," said the ASBL in a statement. "The truth is, since most small business owners are in middle-class and upper-middle-class tax brackets, they would probably end up paying higher income taxes to fill the revenue gap created by eliminating the estate tax."

WASHINGTON, Aug. 16 (UPI) -- Two months after a House committee held a hearing that was sharply critical of the practice of awarding large, no-bid contracts to Native Alaskan owned firms, the National Guard is on the cusp of awarding a five-year $300 million, no-bid services contract to Bowhead Manufacturing.

Bowhead Manufacturing is a subsidiary of Bowhead Holding Co., itself a subsidiary of Ukpeagvik Inupiat Corporation, created in 1973 through the Alaska Native Claims Settlement Act. Bowhead is one of at least seven subsidiaries owned by the Alaska Native Corporation, and part of a growing trend in federal procurement to award contracts to such groups without any competitive bidding because it is fast, easy and legal. The practice also helps government offices meet their small business set-aside requirements, even though Native Alaskan corporations do not have to meet small business parameters to qualify for the work.

In 1971 Congress enacted the Alaska Native Claims Settlement Act to rectify land claims and foster economic development. It created Alaska Native Corporations as the vehicle through which Alaskan Natives would receive land and monetary payments, according to the Government Accountability Office. In 1986, Congress allowed ANC-owned firms to participate in the Small Business Administration's 8(a) program, meant to help foster small businesses owned by historically disadvantaged groups.

But ANCs have a special advantage over other small businesses: there is no limit to the size of contract an ANC can be awarded on a sole-source basis. Other small businesses are held to a $3 million to $5 million limit.

Over the last 20 years, ANCs have spun off multiple subsidiaries to perform government contracts, in some cases teaming with large business that would not otherwise be eligible for the work.

"So what's happened is white guys from Florida go up to Alaska to get someone to go up and get them a no-bid government contract," said Lloyd Chapman, president of the American Small Business League, in an interview with UPI.

The GAO, in testimony to Congress in June, expressed similar concerns. Law requires that ANC employees to perform 50 percent of the work when teamed with a larger corporation, but it is rarely enforced by overworked contracting officers.

"The purpose of this provision, which limits the amount of work that can be performed by the subcontractor, is to insure that small businesses do not pass along the benefits of their contracts to their subcontractors," said David Cooper, the GAO director of the acquisition sourcing and management division. "We found almost no evidence that the agencies are effectively monitoring compliance with this requirement."

No-bid ANC government contracts have grown exponentially over the last five years: in the year 2000 the U.S. government awarded $265 million in contracts to ANCs. By 2005, the amount climbed to $1.1 billion. Over that period the government awarded $4.6 billion in contracts to ANC firms, of which nearly $3 billion were sole-source awards.

The number of ANC subsidiaries created to do the work has also increased dramatically.

According to the Government Accountability Office, in 1988 there was just one 8(a) subsidiary owned by an Alaska Native Corporation. By 2005, there were 154 subsidiaries owned by 49 ANCs. Some subsidiaries are created to assume from older ANC subsidiaries which, under law, can only participate in the 8(a) set aside program for nine years.

The no-bid contracts are legal but some in the small business community and government contend they are being abused, violating the spirit if not the letter of the law.

Cooper testified to the House Government Reform Committee in June that contracting offices use 8(a) awards as quick ways to get work underway. But because they are not competed for best value and best price, they can also cost more. A security guard contract awarded by the Army to ANCs cost about 25 percent more than it would have had it been competed out, and a Hurricane Katrina construction project was also inflated, according to Cooper.

"Without stronger oversight there is potential for abuse and unintended consequences," said Cooper.

In the National Guard's facilities services award to Bowhead Manufacturing, Col. Larry Fields, the National Guard's chief of operational contracting, told UPI the service is compelled by law to give the work to an ANC.

About five years ago, the Ukpeagvik Inupiat Corporation set up a limited partnership between Bowhead and Eagle Support Services, a Huntsville, Ala., company. The partnership was created specifically to approach the National Guard with an offer to perform facilities upkeep and maintenance on equipment, said Field. It was fresh work - the Guard had been performing the work itself until then. The $50 million contract was awarded without competition.

"After we started using it, it was great, an extremely versatile vehicle for us," said Field.

The contract coincided with the war in Afghanistan and then Iraq, wars that tapped the National Guard in unprecedented ways, both increasing the need for maintenance on weapons and vehicles and reducing the ability of the Guard - which was busy fighting - to do the maintenance work itself.

The contract term is up, but the Guard liked the arrangement so well it is now awarding Bowhead Manufacturing - another subsidiary of the same ANC - a $300 million, five-year contract.

Field said the Guard is getting quality service at a good price.

"The (labor) rates being charged by Bowhead Eagle are very competitive - most are covered by the Service Contract Act which sets their rates," Field said.

Moreover, the Defense Contract Audit Agency will be looking at Bowhead's books to determine whether the profit taken by the company is reasonable, Field said.

Even if competition could save the Guard money, Field said the law requires the contract go to Bowhead.

The administration is sanctioning billions in small business contracts to be siphoned off to powerful, politically well-connected corporations in a massive fraud perpetrated against U.S. taxpayers and small business owners, according to high-ranking Democrats and independent watchdog groups.

"The Bush administration has intentionally allowed billions in small business contracts to be diverted to giant corporations," said Lloyd Chapman, president of the American Small Business League. "The days of these corporate bandits stealing contracts meant for small businesses are over."

Democratic legislators and small business advocates have aligned to stop large corporations such as Boeing, Lockheed Martin, Verizon, and Microsoft from gobbling up federal money in the form of small business contracts.

Mr. Chapman estimates that up to $100 billion a year in small business contracts has been misdirected to large businesses for the past five years. He says that Boeing was the largest recipient of small business contracts in 2005.

Federal investigations and independent studies indicate that the Small Business Administration under President Bush has been negligent in its role as an oversight agency.

The Small Business Act of 1953 mandates that 23 percent of the total volume of government contracts go to small businesses. The SBA announced in June that the $79.6 billion awarded to small businesses in 2005 exceeded that mandate. The American Small Business League (ASBL) is still investigating this claim, but independent research based on data from recent years suggests that the SBA is enhancing its performance record or is using numbers quite different from those released to the public to self-report.

Estimates of the overall shortfall at SBA vary greatly according to how researchers define a small business. A study by Eagle Eye Publishers concluded that only $65 billion in prime contracts was awarded to small businesses in 2005 and that the SBA missed its mandate by six percent.

Eagle Eye defined small businesses using government criteria that allows for businesses with up to 500 employees to be classified as small businesses.

Because of this shared criteria, Mr. Chapman calls the study highly conservative and points out that, according to US Census Bureau Statistics, the overwhelming majority of Americans work at firms with fewer than 100 employees.

In his July 12 testimony before Congress, SBA Inspector General Eric Thorson identified loopholes in existing regulations, inaccurate reporting of contract data and lack of penalties for large companies fraudulently seeking small business contracts as flaws in the government's small business program.

The Small Business Reauthorization Act of 2006, which is still pending in the House, could exacerbate or correct these problems, depending on which legislators ultimately have their say. Provisions put forth by Sen. Kit Bond, Missouri Republican, and Rep. Don Manzullo, Illinois Republican, regarding size standards applied to venture capital firms and franchises eligible for small business status have come under fire from small business advocates. Both provisions call for the repeal of existing restrictions on franchise and venture capital firm eligibility. The concern is that more and larger business entities will be competing for small business dollars if these provisions are drafted into law.

According to Rich Carter, a press secretary for Mr. Manzullo, the purpose of Mr. Manzullo's proposed repeal of existing size standards on franchises is to "force the SBA to regulate what defines a franchisee...because we have a lot of franchisees in America who have to go to court to qualify for a small business contract."

Mr. Manzullo first proposed this repeal in 2003. His proposal leaves it entirely up to the Administrator of the SBA to write the new standards.

There is no way to predict how newly appointed SBA Administrator Steven C. Preston will undertake to do that. However, Mr. Preston is the former executive vice president of Illinois-based franchisor ServiceMaster. ServiceMaster's political action committee has made campaign contributions to Mr. Manzullo since 2003.

For their own part, Democrats are responding to small business concerns and to what they see as deliberate executive policies of neglect, diversion, and concealment by drafting legislation designed to address the problems cited by Mr. Thorson and other federal investigators.

For example, Sen. John Kerry, Massachusetts Democrat, has stressed annual recertification of businesses awarded small business contracts. This is a priority for Mr. Chapman because it would guarantee that a business couldn't outgrow its small business status during the life of a contract. It would also make it more difficult for larger parent companies to siphon off small business money by acquiring a small business that already has a prime contract.