Small businesses shortchanged as Feds fail to reach contract goal


Small businesses shortchanged as Feds fail to reach contract goal

By Kent Hoover
The Business Review
July 21, 2008

The federal government failed to meet its goal of awarding 23 percent of its procurement dollars to small businesses, according to preliminary 2007 data.

The official numbers won't be released until August, but it appears small businesses received 22.1 percent of federal contracting dollars in 2007, said Calvin Jenkins, the Small Business Administration's deputy associate administrator for government contracting and business development.

That percentage was down from 2006, when small businesses' share was 22.8 percent, also short of the goal.

More money flowed to small businesses last year, however, because overall federal contracting increased to more than $436 billion.

Hitting the 23 percent goal was harder for agencies last year because they could no longer count contracts awarded to small businesses that were acquired by large businesses.

Until last year, agencies could count these awards as small business contracts for the life of the contract.

In addition, the SBA worked with federal agencies to improve the quality of contracting data.

In the past, billions of dollars were credited to small businesses for contracts that actually went to large businesses.

The SBA and the Office of Federal Procurement Policy removed $4.6 billion of miscoded contracts from the 2005 small business database, and the data scrubbing continued for the 2006 and 2007 goaling reports.

Agencies also were ordered to establish procedures for verifying contracting data and were graded on their efforts. This year, for the first time, they were required to certify the accuracy of their contracting data.

The SBA also asked large businesses to make sure none of their contracts was being counted as a small business contract.

These efforts to get the numbers right are having a "major effect" on agencies' ability to hit their small business goal, Jenkins said. Audit: Miscoding continues

A recent investigation of small business contracts at the Interior Department, found $5.7 million in contracts that were awarded to large businesses but were counted as small business contracts.

Recipients of these contracts included such well-known corporations as The Home Depot, Dell and Weyerhaeuser.

Counting these awards as small business contracts helped the agency achieve its small business goal in 2007.

The inspector general's report blames the errors on data entry mistakes, reliance on incorrect data and the failure to verify a company's size listing in the Central Contractor Registration, an online database of government contractors.

The CCR, for example, still listed subsidiaries of John Deere and Xerox as small businesses on July 14, two weeks after the inspector general's report was released.

"We are working to correct these issues," said Lynn Scarlett, deputy secretary of the Interior. Critic: Mistakes intentional

One Interior Department procurement official told investigators that "contracting officers often click through mindlessly when entering contracts" in the government's procurement data system.

Lloyd Chapman, president of the American Small Business League, doesn't think these mistakes are mindless, however.

"My opinion is they did that intentionally," Chapman said, in order to meet their small business goals.

As evidence, he points to the inspector general's finding that in a few cases contracting officers bypassed a procedure that would have automatically filled a contract's fields with the correct information.

Instead, they made their own determination about a company's size. Why would they do this extra work, Chapman asks, unless they wanted to inflate their small business contracting numbers?

Chapman contends this practice "is obviously not limited" to the Interior Department.

"The intentional diversion of federal small business contract dollars to Fortune 500 firms is a government-wide problem," he said.

The situation is much better, however, than it was five years ago, said Molly Brogan, vice president of the National Small Business Association.

The SBA deserves some credit for reducing the number of miscoded contracts and holding contracting officers more accountable, she said.

"Transparency has certainly increased," Brogan said. "At least they're being more open, honest and candid about what their problems are and where they are, and what their plans are to fix them." Quick info

Fortune 500 goes small

The Interior Department miscoded contracts to these Fortune 500 companies as small business contracts:

The Home Depot Inc. Dell Inc. Deere & Co. Weyerhaeuser Co. Xerox Corp. Waste Management Inc. Sherwin-Williams Co. McGraw-Hill Cos. Starwood Hotels & Resorts


Outside the Beltway? Out of luck winning contracts


Outside the Beltway? Out of luck winning contracts

By Frank Bass
Associated Press
July 17, 2008

BELCHERTOWN, Mass. - Small firms that want to do business with the federal government must keep three cardinal rules in mind: Location, location, location.

Companies within 50 miles of the White House earn nearly $1 of every $3 in federal contracts given to small firms, The Associated Press has found. And small companies competing for federal contracts in the other 99.8 percent of the United States? They may pay the same taxes, do the same type of work and produce the same result, but the deck is stacked against them.

"Geography matters," says Sandy Levine, head of an Olney, Md.-based public relations firm.

Like many Beltway companies, Levine's 25-year-old business has prospered as the annual amount of federal contract work has soared to nearly a half-trillion dollars. Like many Beltway company owners, Levine said she can't imagine trying to land government jobs from outside Washington.

It's a sentiment Jonathan Spiegel ruefully acknowledges. Spiegel, head of ITO Consulting in Belchertown, Mass., is a long way from the nation's capital. Although his leadership development firm has been able to win a government contract here and there, Spiegel says it's never easy — and being so far from Washington makes it more difficult.

"For a small firm," he sighs, "it can be really challenging."

Federal contracting work has exploded in recent years. In 2000, the government paid companies about $200 billion to do its work. Within five years, that amount had roughly doubled, according to a June 2006 report by the House Government Oversight committee.

The AP analyzed 9 million domestic transactions worth nearly $1 trillion handed out from the 2004 through the 2007 budget years. About $212 billion of that went to small businesses, as classified by the General Services Administration — the agency that maintains most of the government's contract records.

Nearly $70 billion of the contract money awarded to small businesses stayed within 50 miles of the White House — even though those companies account for fewer than 2 of every 100 small firms in the United States, and the area encompasses about 0.2 percent of the nation's land area.

The Small Business Act requires the federal government to give at least 23 percent of contract dollars to small companies, but there's no requirement that contract dollars be awarded in any geographic pattern. The AP found wildly varying results among federal agencies:

_Nearly 40 percent of the EPA's contract dollars go to small businesses and of those, nearly 75 percent is spent outside the Washington area. Both figures are among the highest rates in the federal government.

Dale Kemery, a spokesman for the agency, said most EPA contracts are awarded to companies cleaning up Superfund sites, which are scattered around the country. In addition, he said, the EPA has purchasing centers not just in Washington, but in Cincinnati and Research Triangle Park, N.C.

_At the other end of the scale, the National Science Foundation kept more than 8 of every 10 small business dollars within 50 miles of the White House. Barely 14 percent of its roughly $1.1 billion in contracts awarded between 2004 and 2007 went to small businesses.

The NSF declined to comment.

Spiegel, the Belchertown consultant, said one of the biggest obstacles for his consulting group is figuring out what federal agencies need. The contract process generally begins when agencies issue a "request for proposal," or RFP. The request tells potential contractors what the government is shopping for.

Those requests, however, aren't always clear. For example, a Dec. 21, 2007, request by the Transportation Security Administration addressed the agency's need for a baggage screening and test facility at Ronald Reagan Washington National Airport in Arlington, Va. It wanted to hire a small business for the job.

Simple enough. But the government's 82-page outline of requirements contained a nearly impenetrable forest of jargon, at one point describing the need for the agency "to develop and evaluate concepts of operation, Measures of Performance (MOPs), and Measures of Effectiveness (MOEs) of individual systems, as well as fully integrated system-of-systems configurations."

The contract ultimately was awarded to the Vic Thompson Company, a Fort Worth engineering business with a field office in Washington.

The case illustrates another point about the Washington-centric nature of the process. The agency said questions about the proposal would be answered at a Washington meeting barely two weeks after a synopsis of the work was posted on a federal web site. Such meetings are helpful, but it's not always possible for small firms to drop everything and make it to them on short notice, Spiegel said.

"If you can get to the meetings," he said, "you're lucky."

In some cases, small businesses outside the capital are excluded from the bidding process entirely. One contract proposal for printing services released in late December 2007 by the U.S. Agency for International Development limited bidders to those within 50 miles of Washington.

A spokesman for the agency had no explanation. But USAID, which is best known for its overseas development work, has a middling record when it comes to small business contracting in its home country. About 40 percent of its $2.1 billion in contracts is spent on small firms, but 90 percent of that stays within the Washington area.

Indeed, navigating the twists and turns of the contracting process has become so frustrating to some small businesses that a cottage industry of consultants has sprung up to serve them. Patrick Malyszek, owner of an Endicott, N.Y.-based consulting firm that assists small firms, said companies that don't have Washington offices start at a disadvantage.

"It's a battle we fight quite often," he said.


On the Net:

American Small Business League,

Federal Business Opportunities,

Small Business Administration,


Department of Interior Awarded Over $430 million in Small Business Contracts to Corporate Giants, According to New Study

Press Release

Department of Interior Awarded Over $430 million in Small Business Contracts to Corporate Giants, According to New Study

Large businesses May Have Received Over a Billion Dollars in Small Business Contracts From the Department of Interior

July 17, 2008

Petaluma, Calif. - On July 1st, 2008, the Department of Interior (DOI) Office of Inspector General released a report, which found Fortune 500 firms were the actual recipients of federal small business contracts.  The report examined three tenths of one percent of contracts the DOI had reported as going to small businesses during 2006 and 2007 and found that the agency had awarded Fortune 500 corporations $5.7 million in federal small business contracts.
According to the DOI Inspector General, divisions of Xerox and John Deere had misrepresented themselves as small businesses within the government's database of federal contractors as small businesses. Section 16 (d) of the Small Business Act states that any large firm that misrepresents itself as a small business for the purposes of obtaining a small business contract is guilty of felony contracting fraud and subject to a penalty of ten years in prison, a $500,000 fine per occurrence and debarment from federal contracting programs.  Based on a review of the report, the ASBL believes contracting officers at the DOI intentionally falsified information entered into the Federal Procurement Data System - Next Generation (FPDS-NG) as a means of fabricating the DOI's and the Bush Administration's small business contracting statistics.

In response to the DOI IG report, the ASBL conducted a review of the DOI's top 100 recipients of federal small business contracts for both 2006 and 2007.  The lists were obtained from, which has direct access to information within FPDS-NG. 

Within the DOI's top 100 recipients of federal small business contracts for 2006, the ASBL found 22 large firms, most of which were Fortune 500 companies.  Those 22 large firms received more than $200 million in federal small business contracts, which were spread across 894 contract actions.  Within the DOI's top 100 recipients for 2007, the ASBL found 28 large firms, which received more than $230 million in federal small business contracts.  The awards for 2007 were spread across 912 contract actions, which make 26.55 percent of all contract actions awarded to the top 100 for 2007.  Between the two top 100 lists, the ASBL found more than $430 million in federal small business contracts awarded to large corporations. 

In all, the ASBL found a total of 31 large companies within the top 100 lists from 2006 and 2007 combined.  Of the 31 firms found, 16 companies were found to have received federal small business contracts from the DOI in both 2006 and 2007.  In addition to the firms ASBL was able to determine were large, the following clearly large firms were found within the DOI small business contracting data:  Booz Allen Hamilton*, Sprint Communications Company, Perot Systems Government Services*, Hewlett Packard Company, and KPMG*. * Received small business contracts in 2006 and 2007.

According to, the DOI reported $2.5 billion in contracts to small businesses in 2006 and $1.5 billion in contracts to small businesses in 2007.  Based on the DOI IG's methodology for conducting their recent report, the total amount of small business contracts awarded to large corporations by the DOI could exceed $1.7 billion for 2006 and 2007.

The Small business Administration (SBA) attempted to portray the $5.7 million reported by the DOI IG as the total amount of small business contracts that had actually been awarded to Fortune 500 companies by the DOI.  In reality the $5.7 million was only three tenths of one percent of the total amount of small business contracts awarded by the DOI during those years.  The ASBL believes that the SBA misrepresented the DOI IG's findings in its statements to the press.

Under the Freedom of Information Act (FOIA), the ASBL intends to request the specific names of all of the firms that were coded as small businesses by the DOI during 2006 and 2007.  The ASBL will request the specific names of all of the firms that were included.  The ASBL expects to find hundreds of millions of dollars actually wound up in the hands of Fortune 500 corporations and other large businesses.

"If obvious Fortune 500 firms like Xerox and John Deere are listed as small businesses in the governments contractor database, every federal agency and every prime contractor in the country is reporting awards to these firms as small business awards. The Bush Administration has tried to convince us for six years now that the diversion of hundreds of billions of dollars in federal small business contracts to Fortune 500 firms is the result of "miscoding" or random data entry errors. It is simply not believable that for over six years every time a contract is "miscoded" it just happens to inflate the Bush Administration's small business contracting statistics," said Lloyd Chapman, President of the ASBL. "This is obviously intentional felony contracting fraud on the part of large businesses and federal contracting officials. It's time for the FBI to investigate this and it's also time for Congress to pass legislation to stop the wholesale diversion of federal small business contracts to corporate giants. Any member of Congress that won't support legislation to end fraud and abuse in federal contracting should be voted out of office."