Small firms rap SBA for thinking big


Small firms rap SBA for thinking big

By Ambrose Clancy
Long Island Business News
April 25, 2008

This week, the U.S Small Business Administration celebrated “National Small Business Week 2008” amidst foul cries from some members of the small biz community.

According to a 2000 law, the SBA must try to give 5 percent of all federal contracts to small, women-owned businesses. But Margot Dorfman, chief executive of the U.S. Women’s’ Chamber of Commerce, said both the SBA and the chamber agree that goal has not been met.

And Dorfman thinks the SBA’s decision to throw up roadblocks against women-owned businesses, comes straight from the Bush administration.

“I believe this administration, for whatever reason, does not feel it’s necessary to comply with the law,” she said.

Mike Stamler, the SBA’s chief press officer, explained that the law dictates that his organization tries to hit 5 percent. It’s only a goal.

“We’re enacting the law as best we can as Congress asked us to do,” he said.

Sole proprietor Cris Young, owner of Oceanside’s Hudson Fasteners, said that logic is dismissive and wanted answers to why the goals are not being achieved.

She said the SBA has had eight years to reach that goal.

“This is 2008 and the goals are not met,” Young said. “Isn’t that enough time to get this right?”

Another charge leveled at the SBA is large corporations are scoring federal contracts at the expense of small businesses. By law, a goal of 23 percent of federal contracts should go to small businesses. However, the so called “bundling” of contracts, whereby several contracts on one project are included in only one bid, results in small businesses being shut out.

For example, if a small business is contracted to do cleaning for the Internal Revenue Service and windows also have to be cleaned, a large company will come in and bid for both jobs, resulting in two small businesses shut out, said Molly Brogan, spokeswoman for the National Business Association.

“We have concerns and we have raised the issue,” Brogan said, while adding that “the SBA has improved their transparency significantly since previous years.”

Ron Roybal, owner of PRMS Electronic Systems in Islandia, said bundling is done for speed and efficiency, forgetting the concept of a level playing field for small businesses.

“It’s easier for federal agencies to get these bundled contracts awarded,” Roybal said.

The SBA is not to blame, Roybal added. “They do the best they can with the resources they have.”

Stamler agreed, adding that the SBA is constantly trying to identify bundling and that it must depend on other agencies to identify bundling as well.

A more nefarious practice is corporations using small businesses as “pass-throughs.” Jordan Kudler, president of Krest Office Products in Long Island City, explained that a corporation approaches a small business and asks them to be a front, or pass-through for them. The corporation “tells the small business that on any government orders, ‘We’ll pick them, wrap them, pack them and ship them,’” said Kudler. The pass-through does absolutely nothing and receives a percentage of the over-all contract.

“This undermines the true essence of what the federal government is trying to-do which is set aside business for small businesses,” Kudler said. “This is a criminal act and there needs to be a law against it.”

Spokesman Stamler said “pass-throughs are hard to spot. Where we find them we act on them.”

New certification rules to judge what business is truly a small entity have been put in place since June, Stamler said “There never was a big problem with large companies swooping in and taking contracts specifically meant for small businesses,” he said. “That’s a repetitive, incorrect interpretation that one hears.”

Stamler himself is fending off accusations from SBA critics that claim small business are getting stiff-armed out of contracts.

Lloyd Chapman, president of the American Small Business League and a long-time opponent of the SBA, under the Freedom of Information Act has asked for all of Stamler’s e-mail correspondence for 2006-2007 to prove his point.

“Stamler threatens people and I want to expose what he does every day of the week,” Chapman said, adding that the spokesman has slandered him and his organization, which exists to fight the SBA’s giving contracts intended for small businesses to Fortune 500 companies, on numerous occasions.

The SBA is in the process of reviewing “all the correspondence and will hand over what is appropriate,” Stamler said. On the hostility and threatening charges, he added, “You’re asking the wrong guy. Those are not my words. Consider the source.”

Ambrose Clancy can be reached at


Bush Small Business Rhetoric a Stark Contrast to Administration Policies

Press Release

Bush Small Business Rhetoric a Stark Contrast to Administration Policies

Bush praises Small Businesses while moving to end all federal programs to assist small businesses.

April 24, 2008

Petaluma, Calif. - On Tuesday, President George W. Bush issued Proclamation 8241, which stated, "Small businesses are the backbone of the American economy, and my Administration is committed to fostering an environment in which the entrepreneurial spirit can thrive." However, an examination of the Bush Administration's policies from the last seven years reveals a patchwork of anti-small business policies that have been instituted to the detriment of small businesses across the nation.

Since 2002, a series of federal investigations and private studies have all found that the Bush Administration has diverted billions of dollars in federal small business contracts to some of the largest corporations in the United States, such as: Lockheed Martin, Boeing, L-3 Communications, Titan Industries, BAE and Raytheon. The story has been covered by virtually every major newspaper in the country ( and by ABC, CBS and CNN.

The Bush Administration responded by issuing a press release and claiming that it was a myth that large businesses received federal small business contracts. (

In Report 5-15, the U.S. Small Business Administration Office of Inspector General stated, "One of the most important challenges facing the Small Business Administration (SBA) and the entire Federal Government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards." (

-  Shortly after taking office, President Bush removed the Administrator of the U.S. Small Business Administration from the President's Cabinet, and began to cut the SBA's budget and staffing.  Today, the SBA's budget and staffing are approximately one half of what they were when the Bush Administration took office.  In a private conversation, one SBA official acknowledged that the agency's budget and staffing has been cut to the point that it can no longer carry out its mission. (   

-  Since 2000, the Bush Administration has refused to implement P.L. 106-554 to establish a 5 percent set-aside for women owned firms. 

-  In 2006, the Bush Administration was responsible for the closing of the SBA office specially designed to assist veteran owned small businesses in obtaining federal small business contracts. (

-  The Bush Administration has consistently refused to release the names of the actual recipients of federal small business contracts. (  

-  In December of 2006, in the midst of a third investigative story by CBS into the actual recipients of small business contracts, Bush officials removed information from the government's Central Contractor Registration (CCR) database that would indicate whether a firm was small business or a large business. (   

-  On June 30, 2007, Bush officials adopted a policy that will allow Fortune 500 corporations to receive federal small business contracts through 2012. (  

-The Bush Administration tried to misrepresent the actual recipients of federal small business contracts. (  

- Regarding the diversion of federal small business contracts to large corporations during the Bush Administration, Larry Makinson, a senior fellow at the Center for Public Integrity stated, "A lot of the money that you would think is going to truly small businesses isn't." (

- David Drabkin, a senior procurement officer for the General Services Administration stated, "The numbers are inflated, we just don't know the extent." (  

-  SBA Spokeswoman, Sue Hensley stated, "This transition has led to the apparent diversion of contract dollars intended for small business." (  

The American Small Business League has won three federal lawsuits against the Bush Administration and forced the release of information that proved Fortune 500 corporations were the actual recipients of billions of dollars in federal small business contracts. The ASBL is currently suing the SBA to force the release of the actual recipients of federal small business contracts for 2006 and 2007.  The ASBL projects that by the time President Bush leaves office more than $800 billion in federal small business contracts will have been diverted to large corporations.


Democrats Attempt to Amend Small Business Act


Democrats Attempt to Amend Small Business Act

Revision would redefine small business…

By Abby Prince
April 24, 2008

If Democrats succeed in their quest to amend the Small Business Act, it could have a devastating affect on small businesses. New York Representative Nydia Velazquez is leading Democrats in a push to pass H.R. 5819, the Small Business Innovation Research and Small Business Technology Transfer Reauthorization Act.

The bill would effectively change the current definition of a small business from "independently owned" to include businesses owned up to 49.9% by venture capital firms.

GenomeWeb Daily News reports:

"This draft of the bill would reauthorize the programs through 2010 and would give Congress time to examine how the programs are working. The bill also would increase funding levels, raising Phase I awards from $100,000 to $300,000 and Phase II awards from $750,000 to $2.2 million, to reflect the rising costs of high-tech research."

This is the second time in the past year that Velazquez and the Small Business House Committee have tried to pass legislation that would allow wealthy investors to profit from government funds.

Many small businesses may not be able to survive if this bill becomes a law.

The bill is expected to be fast tracked by House leaders in an effort to avoid criticism from small business advocates and media attention.

Find out more on this bill including what you can do to protect your small business, in the SmallBusinessNewz video.


House redefines small business


House redefines small business

By Nancy Marshall Genzer
April 24, 2008

A House bill, passed late last night, now allows venture capitalists to invest in up to 49.1 percent of a small business. Nancy Marshall Genzer looks into how the change affects competition for government contracts.

Please click here to listen


Late last night, the House approved a bill that will change the definition of small business and allow venture capitalists to buy up to 49.1 percent of one. The legislation still needs to pass the Senate. Marketplace's Nancy Marshall Genzer reports.

Nancy Marshall Genzer: The definition of a small business is important because the federal government is required to award a portion of all contracts to mom-and-pop firms. American Small Business League President Lloyd Chapman says, under the new definition, small businesses without deep-pocketed friends would be at a big disadvantage.

Lloyd Chapman: In order to get federal small business contracts, they'd have to compete with firms that were controlled by some of the wealthiest venture capital firms in the country. You can imagine how that would turn out.

But some entrepreneurs have told the House Committee on Small Business they need venture capital to grow. Speaking at a recent hearing, the committee's chairwoman, Nydia Velazquez, said small businesses wouldn't be controlled by their investors.

Nydia Velazquez: Limitations are placed on the venture capital companies, including its size and its control by larger corporations.

Chapman says Velazquez favors the legislation because she took campaign contributions from venture capitalists. Velazquez's office says she wasn't motivated by the money.

In Washington, I'm Nancy Marshall Genzer for Marketplace.



Velázquez Champions VC Firms at Small Business Expense


Velázquez Champions VC Firms at Small Business Expense

By Keith Girard
April 24, 2008

Small businesses suffered a stinging defeat in Congress this week delivered by the one lawmaker who is supposed to be looking out for their interests, House Small Business Committee Chairman Nydia M. Velázquez, D – NY.

Velázquez has been quarterbacking the venture capital industry’s efforts to reverse a Small Business Administration policy that prohibits firm substantially owned by venture capital companies from participating in two key conduits for government research grants, the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program.

For the past two years, she has been the bill’s principal sponsor, and in each case, she’s rammed it through the House at lightning speed with little regard for small business concerns. By the time the dust had settled this time, the House of Representatives had overwhelmingly approved the bill (368-43). The measure all but eliminates “small business” from the programs, according to the National Small Business Association (NSBA).

The NSBA is one of several small business groups that have been pitted against the Biotech Industry Organization (BIO), the National Venture Capital Association (NVCA) and other groups in the five-year battle over the SBA policy. Indeed, the stakes are high. More than $10 billion has been funneled through the two programs since their inception in 1982.

The whole intent of the programs is to make sure small, independent R&D firms have a shot at government grants. In keeping with the landmark 1958 Small Business Act, which created the SBA, the SBIR and STTR are only supposed to be open to “independently owned” firms with fewer than 500 employees.

The programs operated with relatively little controversy until the SBA revised its eligibility policy in 2003. It began excluding firms from competing for grants if they were substantially owned by venture capital companies. As part of the policy shift, the SBA started counting VC company employees and the employees of the firms they controlled toward the 500-employee threshold. The fight was on.

While Republicans controlled Congress, the biotech and VC industry made little headway. But after Democrats took over in 2006, the playing field began to tilt. Small businesses suddenly proved to be no match against a team stacked with heavyweights like Abbott Laboratories, Pfizer, Merck, Monsanto, Bristol-Myers Squibb, Amgen, Eli Lilly, Schering-Plough, GlaxoSmithKline and other multi-national pharmaceutical companies. All of course, are major campaign contributors.

The most recent effort is a case study of how Velázquez has thrown the game to big pharma, through the BIO. Out of three hearings on the bill since January, ten of the 16 witnesses had ties to biotech and/or venture capital interests, two had general biotech backgrounds and the rest were government officials. No one spoke on behalf of small businesses, according to Rick Shindell, who writes a newsletter on the SBIR program.

“Nobody was asked (or allowed) to give testimony in any of the three hearings contrary to the word of BIO and NVCA. In communication with House [small business committee] staffers, the subject of alternatives to VC was ‘off limits.’ Some small Maryland based biotech companies wanted to make their side known, but were rebuffed by the committee. They then tried to go through their Congressman [and House Majority Leader], Steny Hoyer, D-Md., but to no avail,” Shindell wrote.

The bill contains all of the provisions sought by biotech and venture capital interests, according to small business groups. Significantly, the bill prohibits the SBA from classifying any VC company as a “large business” as long as the company has fewer than 500 employees—no matter how many “small” businesses the VC firm controls. “This raises the specter of a competition for funding between actual small businesses and “small businesses” owned by a VC syndicate that controls 1,000 small companies, employees 100,000 people, and generates billions in revenue,” according to the NSBA.

Another provision would allow federal agencies to award an unlimited number of “jumbo grants” particularly tailored to large venture capital concerns. It raises grant ceilings to $300,000 from $100,000 for Phase One research projects and to $2.2 million from $750,000 for Phase Two projects without an increase in the overall set-aside for the program. “Using conservative estimates, more than half the companies currently in the SBIR program would be purged,” the NSBA says.

Yet another provision appears to shift control of the programs from the SBA's Office of Technology to a newly created interagency committee controlled by two other government agencies. That would take the programs out of the hands of the pesky SBA and put it under agencies that are more receptive to the venture capital industry.

After Velázquez introduced the bill (H.R. 5819), it was marked up by three committees and moved to the full House for a vote in one week. Of course, legislation never moves like that without the imprimatur of House Speaker Nancy Pelosi. The California Democrat happens to represent wealthy San Francisco suburbs that are home to dozens of high-tech moguls. It should also come as no surprise that Velázquez is the top recipient on her committee of campaign contributions from the NVCA this year. Thirteen other committee members have received campaign contributions as well, according to federal campaign finance records.

Venture capital and biotech concerns argue that the size restrictions imposed by the Small Business Act are antiquated and don’t reflect the reality of modern research. Because of the high costs of developing new drugs, venture capital funding is required almost as a matter of course. The industry raises the specter that many promising drugs will be abandoned or will go undeveloped without access to the programs.

As always, however, the issue is about far more than altruism. VC firms want the money because they have stopped funding almost all early Phase One research. Instead they are focusing on later stage funding where the risks are lower and the potential return on investment is much higher. In essence, the industry wants the government to take all the risks, so they can step in later and take all the profits.

If that’s the way the VC game is played so be it. But the SBIR and the STTR are “small business” programs. These bills are nothing more than an effort to hijack them. If Congress wants to funnel more grant money to VC firms it should set up separate programs to do so. But that would require more money, and lawmakers would be forced to explain why deep-pocketed VC firms deserve government handouts.