A bigger Voice for Small Business

Data suggests feds inflated small-business stats by mislabeling firms

by | Mar 25, 2007 | ASBL News

News

Data suggests feds inflated small-business stats by mislabeling firms

By Todd Wallack
Boston Business Journal
March 25, 2007

General Electric Co. has more than 319,000 employees around the globe, including in Wilmington. The parent of Wenham's Mullen Advertising Inc., Interpublic Group of Companies Inc., has 42,000 workers. And Natick-based Boston Scientific Inc. has 29,000.
 
But all three companies won millions of dollars in federal awards last year that the government said went to small businesses, according to a Boston Business Journal analysis. Mullen alone won at least $25 million in such pacts, even though it's far too large to qualify as a small contractor. And similar examples abound.
 
"It's a huge problem," said Lloyd Chapman, president of the American Small Business League, a membership group based in Petaluma, Calif. "Small businesses should have an opportunity to compete. But when they are bidding against the subsidiaries of major corporations and foreign institutes, they don't have much of a chance of winning."
 
To be sure, few of the federal contracts that went to big companies were specifically earmarked for small businesses. But in each case, federal procurement records show that government contracting officials reported the contract went to a small business -- raising the possibility that big corporations got preference in the bidding process they didn't deserve. The awards may also have skewed the official government statistics.
 
Overall, the U.S. government claims one-quarter of all federal contract awards went to small contractors in 2005, beating the statutory goal of 23 percent. But federal data shows the government counted contracts to Waltham-based Raytheon Co., GE and other major companies in its small-business figures, making it hard to know how much money actually went to small companies.
 
"I feel it's unfair," said Trevor Rhone, owner of Sparkle Cleaning Services in Framingham. Rhone says he recently lost a bid to clean several local post offices to a larger California company, even though Rhone says he submitted a lower bid. Rhone said he thinks bigger corporations have an advantage because they often know the government procurement officers. "It just does not seem like there is a level playing field."
 
Watchdogs have complained about the issue for several years. A 2002 report from the Government Accountability Office found that five large companies received nearly $500 million in small business awards. Last summer, Eric Thorson, the inspector general for the U.S. Small Business Administration, told the U.S. Senate that errors, loopholes and fraud routinely allow big corporations to win contracts that supposedly went to small companies. In many cases, for instance, government agencies continue to take credit for giving money to small businesses -- even after the recipients have grown into big companies or been sold to larger firms.
 
The exact definition of small business varies by industry. For manufacturers like GE, it's defined as 500 employees or fewer. For wholesalers, it's 100 workers. For retailers, it's a maximum of $6.5 million in annual sales. But no one argues that companies such as GE, Mullen or Boston Scientific meet the definition of a small business.
 
Sen. John Kerry, who chairs the Senate Committee on Small Business and Entrepreneurship, said he was concerned about the Boston Business Journal's findings.
 
"Massachusetts firms should get more contracts -- big and small -- but the federal government does a disservice to our companies when it mislabels them," Kerry said in a written statement.
 
Kerry called for increased training to reduce errors, updating federal regulations to eliminate loopholes and holding companies accountable for fraud. An aide said he is also considering hearings on the issue.
 
The federal government has already taken some steps to address the problem.
 
For instance, new Small Business Administration regulations taking effect in June require companies to recertify as small businesses whenever they are sold or at the end of the first five years of a contract.
 
In the past, businesses could continue to win additional money under existing contracts for as long as 20 years without being reclassified as a big business.
 
"This rule is intended to strike the right balance between fostering growth and accurate data gathering,'' Paul Denett, an administrator with the Office of Federal Procurement Policy, said in November.
 
The old rules help explain some of the awards. For instance, Foster-Miller Inc., a Waltham robotics maker, won more than $70 million in small-business awards last year. But Foster-Miller spokeswoman Cynthia Black said the money was awarded under a contract signed in 2003, before Foster-Miller was acquired by QinetiQ Group PLC, a British company that has more than 12,500 employees. Similarly, GE said one of its subsidiaries, GE Ion Track in Wilmington, received additional money last year under a contract that was signed before the acquisition and later extended.
 
In other cases, it's not clear why the government classified awards to giant companies as small business awards.
 
The GSA said it's up to individual federal agencies to correctly determine the size of a company and enter the information into its contracting database. Meanwhile, two of the individual agencies, Veterans Affairs and the Department of Defense, couldn't explain why they labeled contracts to big companies as small-business awards. A U.S. Army spokeswoman said Mullen's awards were mislabeled because of a data entry error.
 
Boston Scientific declined to comment. Mullen spokesman David Swaebe said the company would never represent itself as a small business and wasn't sure why it was listed that way in government records.
 
It appears the problem isn't limited to small business designations.
 
In nine awards from six government agencies last year, Forrester Research Inc. in Cambridge was certified not only a small business but also as a woman-owned business -- despite the fact that Forrester is a large publicly traded company owned primarily by mutual funds and other institutional investors. Forrester officials could not explain the discrepancy.
 
"At Forrester, we believe that we have followed the appropriate process,'' said spokeswoman Karyl Levinson. But GSA spokeswoman Jennifer Millikin said the designation as a woman-owned company came from "the company's own input" into a contracting database.
 
© 2007 Boston Business Journal
URL: http://www.msnbc.msn.com/id/17809320/
 
 

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New SBA Policy Gives Fortune 500 Firms Billions In Small Business Contracts Until 2012

by | Mar 20, 2007 | Press Release

Press Release

New SBA Policy Gives Fortune 500 Firms Billions In Small Business Contracts Until 2012

Small Businesses Lose Billions to Big Business With New SBA Policy

March 20, 2007

Petaluma, Calif. -- A new Small Business Administration policy set to go into effect this summer will allow the federal government to report billions of dollars earmarked for small businesses to Fortune 500 companies. Lockheed Martin, Boeing, Northrop Grumman, Raytheon, Rolls Royce and L-3 Communications, to name a few, stand to benefit from this policy through the year 2012.
 
With barely four months of experience as the new SBA Administrator, Steven Preston finalized a policy that could divert billions of dollars in contracts earmarked for small businesses to these large corporations and their subsidiaries. Under Preston’s policy, the federal government will be allowed to count contracts to hundreds of the nation’s largest corporations toward the federal government’s congressionally-mandated 23 percent small business contracting goal.
 
As early as 2002, the SBA attributed over 600 large businesses discovered in the SBA’s small business database to miscoding, computer glitches and honest mistakes. During the last four years, more than a dozen federal investigations by the Government Accountability Office, the SBA Office of Advocacy and the SBA Office of Inspector General found fraud and a lack of oversight by SBA officials were also to blame.
 
In March 2005, the SBA Office of Inspector General referred to large businesses receiving federal small business contracts as “one of the biggest challenges facing the Small Business Administration and the entire federal government today.” 
 
Critics of the new policy point out Fortune 500 firms and other large businesses that received federal small business contracts through acquisitions, miscoding, honest mistakes, computer glitches, lack of proper oversight and even fraud will be allowed to continue to receive federal small business status for five more years beginning June 30, 2007.
 
Small business advocates believe thousands of legitimate small businesses across the country could be forced out of business, as they are required to compete head to head with Fortune 500 firms for federal small business contracts. Lloyd Chapman, president of the American Small Business League, says the new SBA policy is tantamount to repealing the Small Business Act for America’s 23 million small businesses.
 
“Fortune 500 firms should be removed from the federal government’s small business database tomorrow, not five years from now,” Chapman said. “We are talking about an SBA policy that will divert over a billion dollars a week in federal small business contracts to the top 2 percent of firms in America every year for five more years. It’s unacceptable that Congress has done nothing to stop this.”
 
The American Small Business League estimates that unless Congress steps in and passes legislation to stop the policy, legitimate small businesses will lose over $300 billion in federal small business contracts over the next five years.

White House PR Firms Squash Stories On Small Business Contracting Scandal

by | Mar 19, 2007 | Press Release

Press Release

White House PR Firms Squash Stories On Small Business Contracting Scandal

White House uses big PR firms to kill stories on small business

March 19, 2007

Petaluma, Calif.-- American Small Business League President Lloyd Chapman says he believes the Bush administration’s expenditure of over $50 million a month to some of the nation’s largest public relations firms is hampering his efforts to expose billions in fraud and abuse in federal small business contracting programs.
 
“White House PR firms have been working overtime to kill stories on Bush administration policies that have diverted over $300 billion in federal small business contracts to the top 2 percent of U.S. firms,” Chapman said.
 
A 2006 Office of Government Accountability report found the Bush administration had spent $1.6 billion over 30 months on public relations campaigns and advertising. In some cases, journalists like Armstrong Williams were paid as much as $240,000 to promote pro-Bush administration policy and pass it off as unbiased opinion.
 
Chapman points to a pattern over the last few years wherein newspapers, magazines and even some of the largest television networks drop his story once Bush administration officials were notified.
 
NBC spent a week in California filming a story on Chapman and his successful legal battle to stop the Bush administration from diverting billions in federal small business contracts to Fortune 500 firms, but the story never aired. CNN’s Lou Dobbs Tonight spent a month researching and filming a story on Chapman and his organization, but pulled the story just hours before it was supposed to air. When the story finally aired six months later, any mention of Chapman and the American Small Business League had been deleted. CBS spent weeks working with Chapman and his staff on what would have been CBS’s third installment in a series of investigative reports on the diversion of billions in federal small business contracts to firms like Rolls Royce, Wal-Mart, Boeing and Lockheed Martin. The story was suddenly halted after the SBA found out about the piece.
 
After spending months working with the New York Times on a story, any mention of Chapman and his group was removed from the story after it was written. 
 
“After the New York Times story, I was contacted by the Los Angeles Times. They wanted to do a story on my campaign to stop fraud and abuse in federal small business contracting,” Chapman said. “I told the reporter if she mentioned me in the story, my name would be removed before the story ran, but she laughed. She called me the day the story ran, very upset, and told me her editor removed all references to me in the story.”
 
Chapman says he believes other publications have suddenly dropped their stories on this issue after being pressured by White House public relations firms, including the Associated Press, USA Today, Wall Street Journal, Dallas Morning News, BusinessWeek, Inc Magazine, Entrepreneur, Fortune, Fortune Small Business and dozens of other smaller newspapers and magazines around the country.
 
“We intend to use the Freedom of Information Act to uncover more information on exactly how PR firms working for the Bush administration are able to exert so much pressure on the media,” Chapman said. “I would like to see Rep. Henry Waxman hold hearings into why the Bush administration needs to spend $50 million a month on PR firms and exactly what those firms are involved in.”

Democrats Ignore Small Business Contracting Scandal

by | Mar 13, 2007 | Press Release

Press Release

Democrats Ignore Small Business Contracting Scandal

No Plans From New Congress to Stop Fraud and Abuse

March 13, 2007

Petaluma, Calif.- Since the Democrats took control of Congress in January, more than $10 billion in small business set-aside contracts have been diverted to some of the largest firms in the U.S. and not one piece of legislation has been passed to stop it.
 
There have been over 400 stories in the media and 14 federal investigations over the last four years on large businesses receiving small business procurement awards. The Small Business Administration Inspector General called this situation “one of the most important challenges facing the Small Business Administration and the entire Federal government today.”
 
Lloyd Chapman, president of the American Small Business League, said that although the Democrats pledged to clean up fraud, corruption and abuses in government while campaigning for Congress, they have given nothing but lip service to this issue.
 
“The Democrats have blamed the Republicans for years for the loopholes and abuse in federal small business contracting and yet, now that they are in power, have done nothing to change it,” Chapman said. “If you look at the House and Senate Small Business Committee Web sites, you will notice that any mention of small business contracting abuse is conspicuously absent.”
 
Sen. John Kerry, current head of the Senate Small Business and Entrepreneurship Committee, who has been a proclaimed advocate for small businesses for nearly two decades, has publicly stated that the current policies are inefficient.
 
“Politicians love to say they want to help small businesses,” Kerry said in the Marin Independent Journal. “But how can any politician make that claim with a straight face when contracts that should be going to these hard-working small businesses are being turned into giveaways to large multinational companies?"
 
Rep. Nydia Velasquez, the head of the House Small Business Committee, has also challenged current SBA policies in investigative reports on CBS, ABC, and CNN and in the New York Times.
 
“The fact that large businesses are being awarded with small-business contracts, and that there is no system in place with penalties or consequences for this, is extremely concerning,” Velázquez said in a New York Times article in December 2006.
Mediterranean
 
Chapman said that despite all the statements Velasquez and Kerry have given regarding the magnitude of this problem, they continue to be “all show and no go.”
 
“I hope we get more than just talk from the Democrats like we got from the Republicans,” Chapman said.
 
ASBL research concluded that approximately half of all funds reported as going to small businesses actually went to some of the largest firms in the U.S., totaling nearly $65 billion a year. Chapman said this problem could be easily resolved with passing an annual recertification policy, but instead, the SBA passed a five-year plan that will allow large businesses to continue collecting small business awards until 2012.
 
“Five-year recertification is just like repealing the Small Business Act for the next five years,” Chapman said. “I can’t believe we’re even talking about how many more years Fortune 1000 firms will get small business contracts.”  
 

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New SBA Administrator Receives Failing Marks From Small Business Group

by | Mar 8, 2007 | Press Release

Press Release

New SBA Administrator Receives Failing Marks From Small Business Group

Steven Preston Accused of Covering Up Fraud

March 8, 2007

Petaluma, Calif.- The new Small Business Administration Head, Steven Preston, has now passed the sixth-month mark as chief of the Small Business Administration. Although organizations like the National Federation for Independent Business, the Small Business and Entrepreneurship Council and the US Chamber of Commerce applauded Preston’s credentials when he was first appointed, small-business advocacy groups are now deeply dissatisfied with his performance.
 
Preston outraged small business owners across the country when he allowed GTSI Corp, a major government IT contractor that the SBA Inspector General recommended for debarment for misrepresenting themselves as a small business, to continue to receive small business contracts without consequence. 
 
On Dec 12, 2006, while the American Small Business League was in the middle of research for a CBS investigative story on small business contracting fraud, Preston directed that all employee and revenue numbers that allow the public to determine the small business status of federal contractors be removed from the Central Contractor Registry data system. In November 2006, less than four months after his confirmation, Preston ignored the SBA Inspector General, the OMB, former head of the Administration for Federal Procurement Angela Styles, and a unanimous vote for annual recertification from the Senate Small Business Committee and put forth his own policy that will allow the government to report awards to Fortune 1000 firms as small business awards until the year 2012.
 
American Small Business League president Lloyd Chapman said that Preston’s actions are devastating for thousands of small businesses across the country.
 
“I told Forbes when Preston was nominated last year that he would likely foster policies that will act as barriers to small firms doing business with the federal government,” Chapman said. “He’s doing exactly what I said he would do by adopting policies that protect fraudulent companies and will divert even more from small businesses. He’s worse than I ever dreamed he would be.”
 
Chapman said that Preston promised to clean up the problems of federal contracting but has made them worse than even the former SBA Administrator, Hector Barreto.
 
“There’s a pattern here. Everything Preston has done makes it easier and easier for large business to misrepresent themselves,” Chapman said. “He’s let a company recommended for debarment go free. He’s proposed a policy that will cheat small businesses out of $300 billion in small business contracts over the last five years. And now he’s trying to cover up this fraud and abuse by removing information from a database that allows the public and the media to tell small businesses from large businesses.”
 
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