New House Bill Lets Fortune 1000 Firms Keep Federal Small Business Contracts
Press Release
New House Bill Lets Fortune 1000 Firms Keep Federal Small Business Contracts
New small business bill benefits Fortune 1000 firms.
April 26, 2007
Petaluma, Calif.- The House Small Business Committee has unanimously passed H.R 1873, titled " Small Business Fairness in Contracting Act." Iowa Representative, Bruce Braley introduced the bill which lacks a re-certification provision to stop the flow of federal small business contracts to Fortune 1000 companies and their subsidiaries.
Small business groups like the American Small Business League say that the bill does not contain any provisions that will stop the flow of federal small business dollars to the hundreds of Fortune 1000 firms that currently have federal small business contracts. As early as 2003, the Small Business Administration, the Office of Federal Procurement Policy, the Office of Management and Budget and the SBA Office of Inspector General all supported the annual recertification of all firms claiming small business status for federal small business contracts. In 2006, the Senate Small Business Committee voted unanimously in favor of annual re-certification for all firms claiming small business status.
An annual re-certification policy that would halt the flow billions of dollars in federal small business contracts to firms like Lockheed, Boeing, Halliburton, IBM, Rolls Royce and AT&T is not included in H.R 1873.
"This bill has absolutely no provisions of any kind that would stop hundreds of Fortune 1000 firms that have received federal small business contracts from continuing to receive billions in federal small business contracts for years to come," American Small Business League President Lloyd Chapman said. "Congressman Braley needs to answer one question; will current small business contracts awarded to Fortune 1000 firms still be counted as small business contracts if this legislation passes?" The correct answer is, yes they will.
The ABC, CBS and CNN networks have all recently aired investigative reports on a federal investigation released in 2006 that found over $12 billion in federal small business contracts actually went to a "who's who" of Fortune 1000 firms in America. To date, over 12 federal investigations have all found billions of dollars in government small business contracts actually ended up in the hands of some the largest corporations in America. Two investigations found fraud as one of the many reasons large businesses have received government small business contracts.
The SBA's own Inspector General referred to the diversion of billions in federal small business contracts to large corporations as, "One of the most important challenges facing the Small Business Administration and the entire Federal Government today."
The absence of an annual re-certification policy that includes re-certification by all firms with existing small business contracts will allow large firms to continue to receive billions of dollars in federal small business contracts.
SBA Resurrects Unpopular Five-Year Grandfathering Plan
Press Release
SBA Resurrects Unpopular Five-Year Grandfathering Plan
SBA renames unpopular five-year grandfathering plan to five-year recertification.
April 24, 2007
Petaluma, Calif.- The Small Business Administration has renamed and resurrected their very unpopular, “grandfathering” proposal from 2004 in the form of five-year recertification, which goes into effect June 30.
Like the SBA’s grandfathering plan, their five-year recertification plan will allow the SBA to count small business awards already awarded to hundreds of Fortune 500 firms and other large businesses towards the congressionally mandated 23 percent small business contracting goal for five more years.
When the SBA originally announced their grandfathering plan in 2004 and began to take public comment on the proposal, they received the largest volume of comments from the public in SBA history. Over 95 percent of the responses received by the SBA were against grandfathering, many of which were directed to the SBA by thousands of small business owners, small business organizations and Chambers of Commerce across the nation.
Both the grandfathering plan and the SBA’s new five-year recertification plan do not take into consideration the diversion of small business contracts to large businesses. An oversight, which unchecked, could allow large businesses that received small business contracts through computer glitches, miscoding, vendor deception, false certifications and even blatant fraud to keep the contracts for five more years or through 2012.
The National Federation of Independent Businesses with over 600,000 members nationally was opposed to the SBA grandfathering plan.
“Were the SBA to do this, it would undercut one of the primary reasons for engaging in a review of the existing size standards: access to government contracts for legitimate small businesses,” said Bruce Phillips, senior fellow at the NFIB Research Foundation, in a letter to the SBA.
In the same letter Andrew Langer, NFIB’s manager of regulatory policy, expressed the NFIB viewpoint, “The NFIB does not support ‘grandfathering’.”
Under the SBA’s five-year recertification plan, Fortune 500 firms and other large businesses will not be required to recertify their small business status until 2012. A 2005 Congressional investigation found that Fortune 500 firms had received over $12 billion in federal small business contracts. Other investigations by small business advocacy groups such as the American Small Business League have found that the top two percent of US firms received over 50 percent of all federal small business contracts. The Center for Public Integrity found the Defense Department had awarded over 47 billion in small business contracts to some of the nation’s top Fortune 1000 defense contractors.
The American Small Business League projects that if the SBA passes its five-year recertification policy, American small businesses dealing in office products, computers, manufactured goods and hundreds of other industries could lose as much as $300 billion in federal small business contracts over the five-year timeframe.
###
SBA decides size really does matter
News
SBA decides size really does matter
By Ambrose Clancy
Long Island Business News
April 20, 2007
It’s all part of a Small Business Administration effort to figure out if small businesses are really getting their fair share of federal contracts. While the SBA tries to steer about a quarter of federal business to small business, an estimated $12 billion in contracts has apparently been going to large corporations mistakenly identified as small businesses.
New SBA rules that go into effect June will require small companies with federal contracts to recertify their size and inform the SBA if the small business is purchased or merged with another business.
The rules stem from a little political bickering between the Bush Administration and Democrats on the House Small Business Committee. While Bush staffers trumpeted that small businesses had received 25.3 percent of total federal contracts issued in 2006, the Dems argued that the figure was actually only 21.5 percent when you factor in “miscoding” that gives large corporations small-company status.
A chief culprit: large fish gobbling up small fish through mergers and acquisitions, then holding onto federal contracts earmarked for the small businesses, according to SBA critics.
Lloyd Chapman, president of the American Small Business League and a longtime SBA critic, said standard operating procedure has been no oversight at all.
“For example, a small company gets a contract to provide office furniture for a federal agency, and the next day they’re bought by some big box outlet,” Chapman said.
The SBA got the message. In November, the administration announced the new regulations would kick in at the end of June, according to SBA spokesman Mike Stamler.
The government defines small businesses as manufacturers with up to 1,500 employees, wholesalers and distributors with up to 100 employees and service industry businesses that take in up to $30 million over three-year periods. Under those guidelines, there are 90,000 small businesses on Long Island, according to Sol Soskin, a director at the Long Island Development Corp., which helps arrange loans for small businesses. Soskin had no data on how many had federal contracts.
Norman Hunte, manager of SBA’s Long Island office, said the new policy “is a good thing.” He referred other questions to Stamler, who said critics were correct when they suggested big companies looked for small, connected companies with lucrative federal deals.
“Fortune 500 companies have acquisition strategies based on acquiring small businesses with long-term federal contracts,” Stamler said.
There are still plenty of cases where small companies become large through fair and simple growth. The five-year recertification will not necessarily mean existing contracts will be voided, Stamler said, but at the end of their run or when an option is due, deals will be reevaluated.
The House Small Business Committee, under a Democratic majority since January, will highlight miscoding in public hearings next week in New Orleans, according to committee spokeswoman Austin Bonner. The committee will look into further “reforming federal contracting practices,” Bonner added.
Lisa Dolan, president of Queens-based Securit, a private investigation and security company with 88 employees and federal contracts, was unaware of the new regulations, but considers them a good move.
“I’ve seen many times where they say they’re small, and when the government gets around to doing their homework – if they ever do – they find they’re huge,” Dolan said.
Still, the arduous paperwork and red tape is worth the time investment, according to Dolan.
“If you’re not involved with the government,” she warned, “the government will run your business.”
New regulations level field for small-firm contracts
News
New regulations level field for small-firm contracts
By Andrew Johnson
The Arizona Republic
April 19, 2007
The U.S. Small Business Administration is introducing new rules this summer that will change when and how often firms must verify their status as a small business.
The new regulations, which go into effect June 30, are designed to level the playing field for small firms by closing loopholes that enable large companies to get contracts under the guise of being small.
Although there are no definitive numbers on how often large firms obtain contracts under the small status, investigations by the SBA Office of the Inspector General have found widespread errors in how contracts are awarded.
Small-business owners who rely on government contracts welcome the upcoming changes.
"I think it's a good thing, even though the requirements might burden the small businesses a little bit more," said Arthur Harrell, co-owner of Venture Enterprises LLC, an office furniture supply company in Chandler. "I think it keeps everybody honest and it keeps a level playing field for small-business (owners) like myself."
Still, not everyone is happy about the new rules, because they don't believe the rules do enough to prevent potential contracting fraud.
"My opinion is that when a large business buys a small business, it ceases legally to be a small business," said Lloyd Chapman, president of the American Small Business League in Petaluma, Calif.
Current rules allow certified small businesses holding long-term contracts, which are defined as those five years or longer, to keep their small status for the length of the contract regardless of whether the size of the company changes.
But many small-business owners say that rule is unfair, because too often, companies will merge, or be bought out by a larger corporation.
When that happens, it allows a large firm to get - and keep - a contract that could go to a small company.
Under the new certification rules:
• A small business fulfilling a long-term contract must recertify as small after the fifth year of the contract and every year thereafter. Currently, firms can fulfill long-term contracts without having to recertify.
• A small business must recertify any time it buys another firm, merges with another firm or is acquired by another firm. Current rules do not require firms to recertify when such events occur.
The new rules still allow small contractors that experience a change in their size to fulfill their contracts.
The hiring federal agencies, however, will no longer be able to count them as a small business.
All federal agencies aim to award 23 percent of prime contracts to certified small firms each year under goals set by the Small Business Reauthorization Act of 1997.
There are different size thresholds for "small" businesses, based on either revenue or the number of employees, and most agencies rely on a specific coding system to determine whether a business qualifies.
For example, a commercial screen-printing firm can have as many as 500 employees and be classified as a small business, but a furniture wholesaler can only have up to 100 employees.
Fraud claims
The new rules are partly in response to claims that large firms are awarded contracts set aside for small businesses under preference programs.
The SBA Office of the Inspector General issued a report in 2005 highlighting many of the inconsistencies in the system.
And in an analysis of six of the 20 largest contracts that were reported as going to small businesses in fiscal 2001 and 2002, the office found that four of the contracts actually went to companies that were large at the time of procurement.
Charles Collins, a small-business specialist at Fort Huachuca Army Base near Sierra Vista, said he believes the new rules could help agencies actually reach small firms.
But, he worries the changes will create more work, too, particularly if a contractor outgrows the small status.
Many small businesses say the federal contracts are their lifeblood, which is why it is so important to create a fair playing field.
For example, Venture Enterprises, the Chandler office furniture supply firm, boasted about $3.5 million in revenue in 2006, said Harrell, who owns the business with his wife, Ren'e.
About $3 million of that came from a contract with the General Services Administration and other contracts the company obtained through the SBA's 8(a) program, which helps socially and economically disadvantaged firms.
In fiscal 2005, small businesses nationwide received $79.6 billion in direct prime contracts from federal agencies, according to the SBA's Office of Advocacy.
That represents 25.4 percent of the $314 billion available for federal contracting.
More to be done?
Despite the changes, critics argue that the new rules still allow large businesses to get contracts.
Chapman said that annual recertification for all small-business contractors is necessary to prevent large firms from unfairly getting contracts simply by purchasing smaller firms. But the SBA believes that's not necessary.
One reason why large firms show up on contract lists as small businesses is because they grow between the time they win a contract and when the contract is completed, said Mike Stamler, spokesman for the SBA in Washington, D.C.
Accusing the SBA of diverting contracts to large businesses is "a deliberate mischaracterization of this issue," said Stamler, noting that the new recertification rules apply to all current and past contracts.
Joan Koerber-Walker, CEO of the Arizona Small Business Association, said the rule changes represent a move in the right direction.
"Can (the system) be better? Of course," she said. "You can always make it better. But is this an improvement? Yeah, it's an improvement."
Reach the reporter at (602) 444-8280. Read his blog at innovation.azcentral.com.