A bigger Voice for Small Business

New regulations level field for small-firm contracts

by | Apr 19, 2007 | ASBL News

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.

House Holds Hearing on Small Business Contracting Issues

by | Apr 18, 2007 | Press Releases

Press Release

House Holds Hearing on Small Business Contracting Issues

House Small Business Committee Chairwoman, Nydia Velázquez is set to explore small business access to federal contracts.

April 18, 2007

Petaluma, Calif.- House Small Business Committee Chairwoman, Nydia Velázquez has called a hearing entitled, “Expanding Small Businesses' Access to federal Contracts,” for Thursday, April 19 at 10 a.m. The committee will hear testimony from the Head of Government Contracting and Business Development, Paul Hsu as well as Emily Murphy, former Chief Acquisitions Officer for the General Services Administration and current employee of private-sector law firm Miller and Chevalier LLP of Washington, according to a government source.
 
 As early as 2002, the General Accounting Office found large businesses were receiving billions in federal small business contracts. The SBA’s Office of Advocacy found corporations such as Hewlett-Packard, Northrop-Grumman, Titan Industries, Raytheon and Burhmann, a Dutch firm with 18,000 employees, had obtained billions in small business procurement contracts. The report concluded “vendor deception” was one of the reasons for the dramatic abuses.
 
There have been 14 federal investigations that have found fraud, vendor deception and mismanagement as key reasons for the diversion of small business contracts to large companies. The SBA Office of Inspector General referred to the diversion of federal small business contracts to large businesses as, “One of the most important challenges facing the Small Business Administration and entire Federal government today…”
 
“I’m glad the house is finally having hearings on this issue, but I am a little concerned that no one has been called to testify who represents small business doing business with the government,” President of the American Small Business League, Lloyd Chapman said. “I believe Mrs. Murphy’s firms represents some of the Fortune 1000 firms that have been receiving billions in federal small business contracts. I don’t see why her input would be helpful. I certainly hope that Representative Velázquez asks Mr. Hsu why the SBA has adopted a policy that will allow the government to report awards to fortune 1000 firms as small business contracts through the year 2012.”
 
 

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SBA To Allow Fortune 1000 Firms To Receive Small Business Contracts For 10 Years

by | Apr 4, 2007 | Press Releases

Press Release

SBA To Allow Fortune 1000 Firms To Receive Small Business Contracts For 10 Years

April 4, 2007

Petaluma, Calif., April 4, 2007- In 2002, the General Accounting Office in Washington uncovered information that found the Small Business Administration had allowed hundreds of Fortune 1000 firms to receive billions in federal small business contracts. The SBA responded by saying corporate giants like AT&T, Lockheed, Boeing, Nike, Sprint and Hewlett Packard had erroneously received federal small business contracts through "miscoding" and "computer glitches."

In 2006, new SBA Administrator Steven Preston passed a policy set to go into effect in June that will allow these Fortune 1000 firms and hundreds of others to continue receiving billions in federal contracts earmarked for small businesses until the year 2012.

The SBA's own Inspector General recommended an annual recertification policy in 2003 that would have stopped Fortune 1000 firms from receiving federal small business contracts. The SBA ignored the recommendation. In 2006 the Senate Committee on Small Business and Entrepreneurship voted unanimously to adopt an annual recertification policy for all firms claiming small business status. SBA Administrator Preston also ignored that recommendation.

If Congress allows the new SBA policy to stand, 10 years will have passed from the date the GAO first exposed this issue in 2002 before the SBA finally removes hundreds of large businesses from the government's database of small businesses in 2012.  

Small business advocates are hoping that the new Democratic Congress will step in and pass legislation to stop the diversion of federal small business contracts to Fortune 1000 firms and their subsidiaries.

"Democratic leaders like Henry Waxman, John Kerry, Nydia Velasquez and Nancy Pelosi have complained for years about corruption under the Bush administration," said Lloyd Chapman, president of the American Small Business League. "It's time for Congress to step up to the plate and pass legislation to solve this problem. Every day that they wait, it costs America's 23 million small businesses $200 million in lost small business contracts a day."

The ASBL estimates that if the new SBA policy is allowed to stand, American small businesses will have lost over $500 billion in federal small business contracts between 2002 and 2012.

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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 Releases

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.