Agencies came up short in meeting their small-business contracting goals in 2007, according to a new federal report. Agencies awarded only 22 percent of their contracting dollars to small businesses, short of the government-wide goal of 23 percent. That performance is worse than in 2006, when the government awarded 22.8 percent of contract dollars to small businesses.

And even that 22 percent figure is an overstatement: The Small Business Administration admits that at least $5 billion of the government’s $83.3 billion worth of small-business contracts in 2008 — or about 6 percent — went to large corporations, not to legitimate small businesses.

If one subtracts those erroneous $5 billion worth of contracts from the calculation, the government would have awarded only 20.6 percent of its contract dollars to small businesses.

Sandy Baruah, SBA’s acting administrator, released an annual report card on the state of the government’s small-business contracting.

Baruah attributed the shortfall in small-business contracting to the fact that data measuring agencies’ progress is more accurate than in previous years. Agencies often incorrectly miscode contracts they award as small-business contracts even though they aren’t. Starting last year, agencies had to certify the accuracy of their data with the Office of Management and Budget. This has created a more accurate goaling report, but the data still is not perfect, Baruah said.

“Errors are out there,” Baruah said. “We need to do more to correct them.”

One such error highlighted by The Washington Post today involved 207 Lockheed Martin contracts coded as small-business contracts. Those errors added $143 million to the government’s small-business spending.

SBA says it should be able to produce a more accurate report for fiscal 2008 — which won’t come out until next year — because 2008 was the first full year when businesses had to recertify their size immediately after being acquired by large companies.

Karen Hontz, SBA’s director of government contracting, said large businesses may be showing up in 2007 data because the rules governing recertification didn’t change until July 2007. Before July 2007, companies deemed small at the time of a contract award got to keep that status for the life of the contract, regardless of whether they outgrew their status or were bought by large companies, she said.
Chris Gunn, a spokesman for the American Small Business League, was skeptical of SBA’s explanations. The more SBA claims to clean the data, the further the government gets from the 23 percent small-business goal, he said.

The government must commit itself to doing business with legitimate small businesses and start reaching its goals, Gunn said. Gunn suspects the government will continue to fall further from the goal as more large businesses are removed from the count.

Nydia Velazquez, D-N.Y., chairwoman of the House Small Business Committee, said she did not trust SBA’s numbers. “Given the continued miscoding of large-business contracts as ‘small,’ the one thing we do know is that the actual small-business percentage is below what the SBA is claiming,” she said in a statement. Overall, the government met only one of its five small-business contracting goals in 2007: the 5 percent goal for contracting with small disadvantaged businesses. Agencies spent 6.6 percent of contracting dollars on small disadvantaged businesses in 2007.

The government as a whole missing its contracting goals for women-owned small businesses, HUBZone-certified small businesses and service disabled veteran-owned small businesses.

The American Small Business League (ASBL) has attacked the outgoing president over his "anti-small business policies" that it claims have dismantled support for companies across the United States.

In a statement, the group delivered a damning verdict of two terms of Mr Bush's small business policies, including his decision to remove the head of the Small Business Administration (SBA) from the cabinet.

The organization also criticized the White House over a "dozen federal investigations" that it claims have uncovered fraud, abuse and a general lack of oversight in the government's small business contracting programs.

By law, a minimum 23 percent of government contracts should go to small businesses. However, the ASBL contents that much of this work is being diverted to large corporations in both the US and Europe.

Based on a series of Freedom of Information Act lawsuits against the administration, the ASBL estimates that small firms miss out on over $100 billion every year because of this.

The Washington Post has today (October 22nd) released an investigation showing that $89 billion of small business awards included contracts for Lockheed Martin and Dell Computers, a Fortune 500 firm.

SBA officials said these are agency "errors" that have been corrected.

We are proud to say that it is our corporate brother, The Washington Post, that has broken a very important, front-page story: of the $89 billion worth of contracts that U.S. government agencies reported giving to small businesses last year--an amount dictated by a legal mandate that a little under one quarter of all federal contracts go to small businesses--at least $5 billion was awarded to Lockheed Martin, Dell, Northrup Grumman, and other companies and subsidiaries of companies that are absolutely no one's definition of "small". The federal government is not giving small businesses the share of contracts that Congress has required it to.

No wonder the American Small Business League and other interest groups are furious that this problem went unaddressed (and indeed may have been exacerbated) during the crafting and passage of the $700 billion big bank bailout. The Post nicely sums up the central problem with this huge, chronic misreporting (besides the fact that it's against the law, of course): "Advocates for small businesses contend that the mistaken agency claims are more than a numbers game," the Post says. "When agencies take credit for awarding contracts to companies that are not small, they penalize legitimate enterprises that need government help." In other words: the mandated quota is there for a reason; misreporting cheats small businesses out of their rightful and legally required share.

The Post examined the government's own information, kept in the General Services Administration's Federal Procurement Data System. Contracts that are awarded to small businesses are reported as such, and have been at least since 1997, when Congress mandated that 23% of all federal contracts go to small businesses--the companies that (as Sen. John McCain has been only too happy to remind us over the past week or so) employ over half of all U.S. workers.

For the record, the fault at least appears to lie with the goverment agencies themselves. The Small Business Administration, whose ostensible job it would be to catch misreporting, is understaffed and has little power to sanction agencies who report contracts that go to big corporations as having been awarded to small businesses. "It is clear that more needs to be done and that contracting offices need to be held accountable for accurate reporting," the Post quotes the SBA's "frustrated" acting inspector as complaining.

In fact, the SBA is expected to issue a report, likely today, revising its earlier $89 billion estimate down to $83.2 billion. In other words: nearly $6 billion misreported. And, at the end of the day, well under 23% of federal contracts awarded to small businesses.

For their part, the companies all at least claim, and not un-credibly, that they never advertise as small.

In case you were wondering, the biggest misreporters, together responsible for over two-thirds of the misreportings, are the Departments of Defense and Homeland Security as well as the General Services Administration--yes, the federal government's own acquisition arm, charged with keeping these very stats!

(To digress quickly, please don't get us started on the lack of sufficient procurement from woman-owned small businesses, either.)

What makes this all the more remarkable is that typical definitions of what constitutes a "small business" for federal procurement reporting purposes actually include plenty of companies that most people would consider big: usually, and depending on the industry, companies with up to 500 employees and $17 million in annual revenue count.

Some of our "favorite" misreportings (with the reminder that the companies tend to assert, believably, that they never represent themselves to the government as small; that, in other words, this is likely the government's fault, not theirs):
-The winner is Science Applications International Corp. (SAIC), a San Diego-based IT firm, which received $258 million in small business contracts, nearly all from the Pentagon. It is estimating 2008 revenues of $9 billion.
-Prototypical defense contractor Lockheed Martin and its subsidiaries (which would not qualify even if they happened to be themselves "small") got $143 million in small business contracts.
-Dell, the old-line Silicon Valley powerhouse that may make the computer you're currently reading this on, received $89 million in small business government contracts.
-$62 million in such contracts went to a subsidiary of L-3 Communications, a $12 billion company.

2008 is probably a lost cause: we can only hope that the inevitable revelations of how many "small business" contracts awarded this year went to immense multinationals are not quite as huge as the 2007 numbers.

However, we will be watching the new administration. They must take quick and decisive action to insure that small business procurement is reported honestly and accurately by all U.S. agencies (though it might pay to start with the Treasury and Homeland Security Departments).

Not only that: the inevitably smaller numbers of small business contracts awarded to actual small businesses mean that agencies must be made to make extra efforts to up their small business awards so that they can meet their legally required quotas. Frankly, given how small businesses have been cheated out of their rightful share over the past several years, giving them a little more than the law requires would be far from out of order.

Source:  http://bizbox.slate.com/blog/2008/10/scandal_small_businesses_not_g.php

U.S. government agencies made at least $5 billion in mistakes in their recent reports of contracts awarded to small businesses, with many claiming credit for awards to companies that long ago outgrew the designation or never qualified in the first place, a Washington Post analysis shows.

The Post examined a sampling of the $89 billion in contracts the agencies classified as small-business awards, which help them satisfy a congressional mandate to award nearly a fourth of all government work to small firms.

In the data The Post analyzed, federal agencies counted Lockheed Martin and its subsidiaries as "small" on 207 contracts worth $143 million. Dell Computer, a Fortune 500 company, was listed as a small business on $89 million in contracts.

The Navy claimed that $60 million in work it gave to Digital System Resources, a division of General Dynamics, went to a small firm -- a year after agencies were warned that DSR did not qualify. The Defense Department, which for a century has used Electric Boat to build submarines, labeled the firm as a small business for $1 million in supplies and services. The Department of Veterans Affairs said a computer glitch caused it to claim a $29 million payment to defense security giant CACI as a small-business award.

Government officials questioned by The Post acknowledged that mistakes are a long-standing problem, leading to exaggerated claims about the amount of federal work directed to a growing sector of the economy. The Small Business Administration, which annually reports on how agencies performed, said it thinks that many agency mistakes, including some The Post identified, have been corrected in a long-delayed report it plans to release today. The SBA has worked with agencies in the past several weeks to scrub errors from the data.

An SBA spokesman said it will report that small businesses obtained $83.2 billion in federal work last year -- about a $6 billion drop from what agencies claimed last month in a federal database SBA uses to track small-business awards.

"Are there lots of errors in the data? We have to say yes," said Calvin Jenkins, SBA's deputy associate administrator for government contracting. "But is it getting more accurate? Absolutely, it is. We rely to some extent on the public to help us fix some of these obvious errors."

The federal definition of a small business varies dramatically from industry to industry. For some, a business qualifies as small if it has fewer than 500 employees. For others, it must have less than $17 million in annual revenue.

Advocates for small businesses contend that the mistaken agency claims are more than a numbers game. When agencies take credit for awarding contracts to companies that are not small, they penalize legitimate enterprises that need government help, they say.

"I keep asking, 'How does this keep happening, and why isn't it being caught?' " said Robert Taddeo, president of Pacifica Electronics, a small business that repairs military aircraft communication systems. "What I've learned is the U.S. government is just lazy and lax in making sure to use legitimate small businesses that can do the work and keep down the cost to the taxpayers."

Lloyd Chapman, president of the American Small Business League, said the Bush administration has hurt the economy by not protecting small businesses' fair share. "For very dollar that was taken away from small business and miscounted, companies were forced into bankruptcy and to close their doors," he said.

The administration pledged last year to impose new controls to ensure greater reporting accuracy. But problems persist.

Acting SBA Inspector General Peter McClintock said he is frustrated. "It is clear that more needs to be done and that contracting offices need to be held accountable for accurate reporting," he said.

Congress in 1997 established the government-wide goal of awarding 23 percent of its work to small businesses because they play an increasingly critical role in driving the economy. Small firms now employ more than half of the nation's workers and are responsible for 60 to 80 percent of jobs created each year.

The 23 percent goal is in addition to tailored government programs that reach out to disadvantaged or minority firms by setting aside certain contracts for them or programs that give bidding preferences to small businesses.

Companies doing work with the government are entered into a huge government database known as the Federal Procurement Data System and maintained by the General Services Administration. Procuring agencies note whether the company qualifies as a small business.

To sample the data's accuracy, The Post examined contracts awarded to the top 200 winners that were also classified last month as small businesses, a total of about $13 billion in contracts. The analysis also scrutinized $1 billion in contracts won by eight specific Fortune 1,000 companies and their subsidiaries.

The most errors -- 70 percent -- were made by the Defense and Homeland Security departments and the General Services Administration, the Post analysis showed.

The Post found that 36 of the 200 companies at the top of the government's list do not qualify as small under government definitions and were improperly counted. Federal procurement officials either did not check or ignored readily available records, including the government's own small-business registry.

About $1.2 billion in work was won directly by international conglomerates with thousands of employees. That included global defense giants such as British Aerospace, General Dynamics, Northrop Grumman and Science Applications International Corp. (SAIC) and their subsidiaries.

SAIC and its subsidiaries were the biggest winners of work that was improperly counted. The San Diego-based information technology firm and its subsidiaries won $258 million in contracts initially classified as small-business awards -- $223 million from the Defense Department. SAIC spokeswoman Laura Luke said the firm never presents itself as small and alerts the government that firms it has purchased should lose their small-business label.

The Pentagon said it is reviewing The Post's findings, but suspects some acquired companies remained classified as small under long-term contracts that were not modified.

"The department takes the accuracy of the information reported to FPDS very seriously," said James Finley, defense's deputy undersecretary for acquisition and technology.

The main reason why mistakes persist is that no real sanctions exist for agencies that consistently overstate their small-businesses awards. The errors are unlikely to be caught, officials say, because the SBA lacks the staff and the clout to stop them.

"These big companies have been allowed to get away with this for so long, they don't even bother to change or hide their name," said Bill Miera, chief executive of Fiore Industries, a military contractor in New Mexico. "The motivation is purely profit."

Corporate officials who reviewed The Post's findings said the government sometimes is mistakenly categorizing behemoth contractors as small, but more often is failing to notice when small companies are absorbed by larger corporations.

Leaders at Lockheed Martin, Dell and many other large corporations acknowledge the errors but say they are not to blame.

"We have not found any instances that Dell Marketing L.P. or Dell Federal Systems L.P. was inaccurately described (by Dell) as a small business," Dell said in a statement.

Lockheed Martin said in a statement that the government appears to have miscounted as small businesses some of the firms it purchased, and added: "We do not bid on or compete for federal contracts as a small business."

Last year, the Pentagon counted as small-business contracts the $62 million it gave to SYColeman, a video production company in Arlington.

The millions of dollars paid to produce pro-American articles and broadcasts for Iraqi television and radio, however, went to a subsidiary owned by L-3 Communications. The L-3 conglomerate headquartered in New York is the one of the world's largest defense contractors and boasted $12 billion in revenue last year.

A spokesman for U.S. Special Operations Command said that labeling SYColeman a small firm was human error.

"On June 10, 2008, the SYColeman contract was listed in the federal database as a 'small business' in error after a USSOCOM contracting officer entered the wrong code," Lt. Cmdr. Marc Boyd wrote.

Sen. John F. Kerry (D-Mass.), chairman of the Senate committee on small business, said it is another example of the government's "phony numbers" and broken promise to the small businesses that make up 99 percent of U.S. companies.

"They aren't checking. They don't care," he said. "They simply aren't doing their job of looking out for small business."

Database editors Sarah Cohen and Dan Keating and staff researchers Madonna Lebling and Julie Tate contributed to this report.

Source:  http://www.washingtonpost.com