Petaluma, Calif. - A recent story by the Washington Post concluded that over 40 percent of the contracts federal agencies were supposed to give to small businesses actually were diverted to Fortune 500 firms.

The Washington Post reviewed a sample of $13 billion in federal contracts that were reported as going to small businesses. In that sample, the Washington Post found over $5 billion or approximately 40 percent had actually been awarded to Fortune 500 firms such as Lockheed Martin, Dell Computer, L-3 Communications, SAIC, Northrop Grumman, General Dynamics and British Aerospace (BAE).

The information reviewed by the Washington Post was the most accurate data the government has produced since 2000. In 2002, the General Accounting Office (GAO) launched an investigation based on information provided by American Small Business League (ASBL) President Lloyd Chapman (https://www.asbl.com/showmedia.php?id=10), which found thousands of large businesses were receiving federal small business contracts.

The ASBL projects that the volume of federal small business contracts that were diverted to Fortune 500 firms was much larger in the earlier years of the Bush Administration, before the problem was exposed in investigative stories by CBS, ABC and CNN. (https://www.asbl.com/media2.php) 

The most recent estimates from the Small Business Administration (SBA) Office of Advocacy reported that approximately $140 billion in government contracts and subcontracts had been reported as going to small businesses each year.

The 40 percent figure uncovered by the Washington Post was just for Fortune 500 firms and other clearly large businesses. The Washington Post did not look at other large businesses that were not household names, but still would not qualify as small businesses. If all firms that did not qualify as legitimate small businesses were considered, the percentage could be much higher.

Several government officials have put the percentage of federal small business contracts that were diverted to large businesses between 50 percent and 86 percent.

Using the conservative 40 percent number uncovered by the Washington Post, during the eight years of the Bush Administration, approximately $448 billion in federal small business contracts would have been diverted to Fortune 500 firms and other large businesses.

Based on information obtained in a series of successful Freedom of Information Act (FOIA) law suits the ASBL has won against the Bush Administration, the ASBL projects that during the eight years of the Bush Administration over $600 billion and possibly as much as $800 billion in government small business contracts were diverted to corporate giants in the United States and Europe.

In February, Senator Obama stated, "Small businesses are the backbone of our nation's economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants." (https://www.asbl.com/showmedia.php?id=1002)  

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Petaluma, Calif. - Yesterday, the Small Business Administration (SBA) distributed a press release attempting to characterize the recently presented findings of a Washington Post study as proof that only a small portion of federal small business contracts are diverted to large corporations.  However, in its release the SBA failed to recognize that the Post's study determined that the government had awarded more than $5 billion in small business contracts to large corporations from a sampling of only $13 billion in contracts.  According to the Post's findings, nearly 40 percent of the small business contracts they analyzed went to large corporations.

In July of this year, the SBA used the same technique in an attempt to counter an investigation by the Department of Interior Office of Inspector General (DOI IG), which found that the DOI had misstated the achievement of its small business goal by including Fortune 500 firms. (http://www.doioig.gov/upload/2008-G-0024.pdf) In its investigation, the DOI IG reviewed 0.3 percent of total contract actions during years 2006 and 2007 and found that over a dozen Fortune 500 firms were coded as receiving $5.7 million in small business contracts.  In response to the DOI IG's findings the SBA attempted to characterize the IG's findings as the total amount of small business contracts awarded to large businesses. 

The SBA has a long track record of attempting to misrepresent the magnitude of the problem of large corporations receiving federal small business contracts.  The SBA has gone so far as to claim that it is a myth that large corporations receive federal contracts intended for small businesses by issuing a press release on the subject. (http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_07-30.pdf)  

It is difficult to know exactly how severe the problem is, because the government has extensively modified the data.  For example, one study found that 10,000 major contracts were removed from the government's contracting database and contract numbers for 2003 had been concealed. (https://www.asbl.com/documents/fpdsaccuracyletter10000.pdf) 

The SBA has fought every effort by the American Small Business League (ASBL) to expose the actual recipients of federal small business contracts.  The SBA has fought to the point that in August of this year, officials from the agency attempted to convince a United States District Court judge that the SBA did not have any information indicating the names of firms that had received federal small business contracts for FY 2005 and 2006.  After losing the case the SBA has now appealed the District Court's decision to the Ninth Circuit Court of Appeals. (https://www.asbl.com/showmedia.php?id=1150)    

In Report 5-14, the SBA OIG found that the SBA itself was reporting awards to large businesses as small business awards.  In fact, the SBA was reporting awards to multinational Dutch conglomerate Buhrmann NV. (http://www.sba.gov/ig/8-14.pdf)

The pattern of what the SBA likes to call miscoding is anything but random.  One-hundred percent of the time, the miscoding results in contracts meant for legitimate small businesses being diverted to Fortune 500 firms; it's just not believable.

There have now been 15 federal investigations and hundreds of stories in the main stream media exposing the diversion of federal small business contracts to large corporations.  Despite all of this, officials at the SBA continue to try to convince the American people that the diversion of federal small business contracts to Fortune 500 corporations is a myth," ASBL President Lloyd Chapman said.

Petaluma, Calif. – For the seventh consecutive year, Bush Administration officials are still claiming that billions of dollars in federal small business contracts have been diverted to Fortune 500 firms through miscoding, human error and computer glitches.

A recent Washington Post story failed to mention 15 federal investigations, which found that blatant abuse and loopholes are rampant within federal small business contracting programs. Several investigations even found fraud.

As early as 1995, the Small Business Administration Office of Inspector General (SBA IG) found fraud in federal small business contracting programs. In its semiannual report to Congress the SBA IG stated, “of a particular fraudulent practice:  companies that SBA, after sustaining protests against them, had prohibited from representing themselves as small businesses, under a particular SIC code, were continuing to falsely certify themselves as eligible for small business set-aside contracts.” (http://www.sba.gov/ig/igsemiannual.html) 

In 2003, the SBA Office of Advocacy commissioned a report from Eagle Eye Publishers, which found "vendor deception" as one of the reasons large firms received federal small business contracts. (https://www.asbl.com/documents/eagkeeye_report%202002.pdf) The American Small Business League (ASBL) sued the SBA under the Freedom of Information Act (FOIA) forcing the SBA to release the original draft of the report that found fraud to be the cause of the problem. However, the edited version of the report released by the SBA had removed "vendor deception" as a reason for the diversion of federal small business contracts to Fortune 500 firms and other large businesses.

In 2005, based on information provided by ASBL President Lloyd Chapman, the SBA IG issued Report 5-16 which found large firms had received federal small business contracts by making "false certifications" and "improper certifications." (http://www.sba.gov/IG/05-16.pdf)

Based on information provided by Chapman, the SBA IG found that GTSI and Insight Public Sector had misrepresented themselves as small businesses in order to receive federal small business contracts. In one investigation, GTSI was recommended for debarment for misrepresenting themselves as small and in another investigation Insight Public Sector paid a $1 million fine to settle a case in which the firm had misrepresented themselves as a small business to receive federal small business contracts. (https://www.asbl.com/showmedia.php?id=533)

In 2005, the ASBL filed a lawsuit in Federal District Court, Northern District of California, which forced the SBA to release GTSI's name as the firm that had been recommend for debarment. (https://www.asbl.com/showmedia.php?id=530)

This July, the Department of the Interior (DOI) Office of Inspector General released an investigation, which found the DOI had reported millions of dollars in small business awards to Fortune 500 firms. That investigation found Fortune 500 firms had listed themselves as small businesses in the government's Central Contractor Registration (CCR) database. (https://www.asbl.com/showmedia.php?id=1092)

In February, Senator Obama released the statement, “It is time to end the division of federal small business contacts to corporate giants.”  Since then, Senator Obama has not mentioned the issue publicly and has not offered any specific solutions as to how his administration plans to address the problem.

Working with Senator Barbara Boxer (D - CA), ASBL President Lloyd Chapman has drafted legislation entitled, “The Small Business Fairness and Transparency in Contracting Act.” The draft legislation is based on the definition of a small business in the Small Business Act of 1953, which states that a small business must be independently owned and operated. The legislation would preclude the federal government from reporting awards to publicly traded firms as small business contracts.

"The GAO first reported this problem in 2003, there have now been over a dozen investigations and hundreds of stories. It is time for Congress to pass legislation to stop small businesses from being cheated by the government," ASBL President Lloyd Chapman said.

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