With the Small Business Act of 1953, the U.S. Congress established that as many Federal Government contracts as practical should be awarded to small businesses. Specifically, the federal marketplace has a mandated small business contracting goal of 23 percent.

A recent report from the Department of the Interior's Office of Inspector General reveals that not only is that goal being missed, it's being done so to the benefit of large firms, including Fortune 500 companies.

The report, "Interior Misstated Achievement of Small Business Goals by Including Fortune 500 Companies" indicates that during fiscal years 2006-2007 approximately $5.7 million in contracts that were supposed to be set aside for small businesses went to the likes of Dell, Home Depot, John Deere, McGraw-Hill, Sherwin Williams, and Xerox Corporation--and the DOI improperly received small business credits for them.

The errors stem from both existing and improperly entered data within and Federal Procurement Data System-Next Generation (FPDS-NG). According to DOI Inspector General Earl Devaney, "The main reasons that contracts to large businesses have been incorrectly coded as small business contracts relate to data entry mistakes, reliance on incorrect data, and a failure on the part of contracting officials to verify business size reported in Central Contract Registration."

The report says "the incorrect data brings into question the accuracy of the small business goal achievement" that the DOI reported.

The U.S. Small Business Administration, whose mission is to "aid, counsel, assist and protect the interests of small business concerns," says that the DOI IG report is consistent with its own findings. According to a department spokesperson, the SBA's perspective is that "a miniscule percentage of contracts held by large businesses" had been miscoded. Further, the SBA indicated that the DOI report "demonstrates that SBA's partnership with the Office of Federal Procurement Policy to clean contracting data is working."

As of press time, the SBA could not be reached for further comment.

The American Small Business League, a non-partisan group committed to addressing issues that cost small businesses government contracts, disagrees with the SBA's assessment.

"Federal investigations have been coming out for roughly six years now that clearly show that Fortune 500 corporations are the actual recipients of federal small business contracts," ASBL President Lloyd Chapman told the media. He added, "This situation is obviously not limited to the DOI. The intentional diversion of federal small business contract dollars to Fortune 500 firms is a government-wide problem."

Congress has attempted to address this issue as well. In May 2007, the House passed H.R. 1873, The Small Business Fairness in Contracting Act.

The bill addresses contract bundling, procurement procedures, audits of the Central Contract Registration to ensure there are no fraudulently designated small businesses, and it aims to increase the mandated government-wide small business procurement contract goal to 25 percent, among other measures. The bill was given to the Senate May 11, 2008, where it has yet to be addressed.

Source: www.hispanicbusiness.com

Federal procurement databases are still rife with examples of large businesses listed as small ones, despite repeated, well-publicized efforts to scrub the data, the Interior Department inspector general has found.

In a July 1 report, the IG said three divisions of Xerox Corp. were currently listed in the Central Contractor Registration as small businesses. Two of the divisions also showed up in CCR’s Dynamic Small Business Search.

John Deere Construction & Forestry, a division of John Deere Co., was identified as a small business in CCR, the Dynamic Small Business Search and the Online Registrations and Certifications (ORCA) database. The IG said the company claimed it qualified because it has fewer than 500 employees and less than $2 million in annual revenue, but its parent has $22 billion in annual revenue.

The IG found Dell Federal Systems GP LLC, a subsidiary of Dell Inc., was identified as a small business in its CCR registration. Its parent has more than $57 billion in annual revenue.

Contracting officers in all agencies rely on those databases to determine whether a company qualifies as small.

If companies misrepresent their eligibility for small business preferences, “that’s felony federal contracting fraud,” said Lloyd Chapman, president of the American Small Business League in Petaluma, CA. He has long contended that large companies are masquerading as small ones to take advantage of the preferences.

SBA and the Office of Federal Procurement Policy last year announced a major effort to improve the accuracy of contracting data. Agencies are now required to verify their reports to the Federal Procurement Data System-Next Generation. Then-SBA Administrator Steven Preston asked chief executives of up to 800 of the largest federal contractors to voluntarily correct records on any contracts that identify their corporations or subsidiaries as small firms.

SBA said a scrub of 2005 data found $4.6 billion in contracts credited to small business that actually went to large corporations. However, a study of the same data by the Democratic staff of the House Small Business Committee identified $12 billion going to companies erroneously counted as small. That is about 15% of all small business awards. (SAA, 8/31/07; 8/11/06)

The Interior IG examined the department’s 2006 and 2007 contracts, awarded after the data-scrubbing push began. In addition to the preceding examples, it found contracting officers had identified Home Depot, Waste Management Inc., McGraw-Hill, Sherwin Williams and Starwood Hotels as small in their official reports to FPDS. The auditors said about $5.7 million in contracts awarded to large businesses were counted toward the department’s small business goals in 2006 and 2007.

The IG’s findings indicate that some Interior Department contracting officers have ignored several directives since 2004, cautioning them to be more careful about the reporting of small business contracts. One contracting officer said, “If contracting officers did their job, [FPDS-NG errors] wouldn’t happen.” Another told the auditors, “Contracting officers often click through mindlessly when entering contracts in FPDS-NG.”

FPDS-NG, introduced in 2003, has many features that fill in forms automatically, to avoid data-entry errors. For example, when a GSA Schedule delivery order is entered into the system, it automatically determines whether GSA considers the contractor large or small. The IG said some contracting officers defeated that feature by entering GSA delivery orders as “purchase orders,” and filled in the small business block manually.

In other cases, the auditors found, GSA’s classification of a small business was wrong, but the contracting officer could not change it in FPDS-NG.

Both the Interior IG and SBA have blamed most of the misidentified contracts on data-entry errors.

Chapman, of the American Small Business League, charges the Bush administration is cooking the books to play down the problem. “What are the chances that it’s not just [happening] at Interior?” he asked in an interview. “This is just the tip of the iceberg.”

In May U.S. District Judge Marilyn Patel ordered SBA to turn over more than 10,000 pages of data listing the names of all firms that received federal small business contracts for fiscal years 2005 and 2006.

The Small Business League said its preliminary review indicates “that Bush Administration officials manipulated the data to disguise the true volume of government small business contracts that actually wound up in the hands of Fortune 500 corporations and other large businesses.”

With nearly 50,000 employees in 27 countries and revenues topping $22.7 billion in 2007, John Deere Co. hardly qualifies as a small business.

But, that's just how contracting officers at the Interior Department categorized the company, which ranks 98th on the Fortune 500 list, on fiscal 2006 and 2007 contracts worth more than $618,000.

John Deere was among 12 large companies -- nine of which are on the Fortune 500 list -- Interior mistakenly coded as small businesses during that two-year period, according to a report released this week by the agency's inspector general.

"The intent of the Small Business Act is to aid, counsel, assist and protect the interests of small business concerns," wrote Interior IG Earl Devaney. "However, unreliable data and data entry mistakes ... have not protected small business interests."

In total, the IG found roughly $5.7 million in contracts were incorrectly coded as going to small businesses. The majority -- more than $4.1 million -- went to universities and state agencies, which are ineligible for small business awards.

In a statement Interior Deputy Secretary Lynn Scarlett acknowledged the coding errors, but argued that they represented a fraction of the agency's overall small business actions. Interior reported awarding more than $1.39 billion in contracts to small businesses in fiscal 2006 and $1.6 billion in fiscal 2007.

The Small Business Administration echoed Scarlett in a statement Wednesday that argued the report demonstrates that coding errors are limited to a "minuscule percentage" of Interior's contracts and that steps the agency has taken to clean up contracting data have worked.

"SBA applauds the inspector general's useful report for its thoroughness and clarity on the issue of small business contracting," SBA acting Administrator Jovita Carranza said. "We also commend the Interior Department's efforts to ensure the integrity of small business contracting data and keep miscoding to a minimum. This report is a useful roadmap in our ongoing efforts to identify and cure these technical issues."

In an interview, SBA spokesman Michael Stamler acknowledged that since the IG reviewed only a small fraction of the agency's small business contracts, other coding mistakes could still exist.

While the large companies that were miscoded did not actually win contracts set aside for small businesses, the errors the IG discovered allowed the agency to count the awards toward annual small business contracting goals.

The federal government has a statutory goal of awarding 23 percent of all available contract dollars to small businesses. In fiscal 2006 -- 2007 figures are not yet available -- the Interior Department reported awarding more than 55 percent of its eligible contract dollars to small businesses, one of the best records governmentwide.

The IG attributed the mistakes to contracting officers who entered data into the system incorrectly, failed to verify the companies' business size and relied on the work of other agencies.

For example, five contracting officers admitted they did not check the Central Contractor Registry database prior to awarding contracts to Waste Management Inc., a global firm with more than $13 billion in revenue last year. According to a 2006 Interior policy memorandum, department contracting offices are required to confirm a company's size prior to awarding a contract.

Contracting officers told Interior investigators that some of their colleagues "often click through mindlessly" when entering information into the government's contracting database, known as the Federal Procurement Data System. Another said that "if contract officers did their job, [these errors] wouldn't happen."

In several other cases, divisions of Xerox, Dell and John Deere appear to have misrepresented themselves as a small business in CCR, a database in which all the information is entered by the vendor.

Scarlett said Interior is "working to correct these issues."

The IG also found problems with interagency contracts, such as blanket purchase agreements, General Services Administration Multiple Awards Schedule contracts and indefinite-delivery, indefinite-quantity vehicles. The report found that with these multiagency contracts, the size determination was made by the original contracting officer, not an Interior official.

"When that contracting officer incorrectly codes a contract as a small business, the error is repeated on all subsequent task orders," the report stated.

Lloyd Chapman, president of the American Small Business League, said the report proves that the problem of large companies winning small business contracts is real and more widespread than the government will admit.

"The SBA continues to say that this is a myth," Chapman said. "But, there have been about 12 reports [on this topic] since 2003. It is unacceptable that this is still going on and that Congress has not passed legislation to stop it."

Source:  http://www.govexec.com/dailyfed/0708/071008rb1.htm