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

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

Of all the problems facing the Small Business Administration, one of its largest responsibilities -- overseeing the award of $100 billion in government contracts every year -- has been its most persistent and controversial.

Outgoing SBA Administrator Steven Preston has said repeatedly that the problem is under control. He’s even gone so far as to call it a myth. But another new government report has discovered just the opposite. It found that some of the nation’s top Fortune 500 companies,
from Home Depot and John Deere to Weyerhaeuser and Waste Management, raked in millions of dollars in government small-business contracts over the past two years.

The just-released report was surprising in two respects. First, its conclusions were unequivocal; it placed a large part of the blame on contracting officers who "consistently" failed to verify business size. Second, the investigation was conducted, not by the SBA, but by the Department of the Interior’s Office of Inspector General.

"This is just a small agency. Can you imagine what is going on at the defense department," said Lloyd Chapman, the founder and president of the American Small Business League (ASBL) in an interview with Allbusiness.com. Chapman is well known at the SBA. He’s been waging a five-year campaign to bring attention to the misdirection of as much as $100 billion a year by his estimates from Main Street businesses to Wall Street behemoths.

The ongoing contracting scandal is just one more example of "cookie jar capitalism" at the SBA. While well-known corporations provided the most glaring examples of abuse, small business contracts are a virtual gravy train of government funding for federal, state and local
government agencies and major universities, the report found.

The General Accountability Office first uncovered the diversion of federal small business contracts to Fortune 500 corporations in 2002. Since then, a dozen federal investigations have found that Fortune 500 firms and other large corporations were dipping their hands into the
cookie jar. Despite the series of federal investigations and more than 400 stories in the news media since 2002, says Chapman, no legislation has been passed to address the problem.

During that time, his organization has sued the SBA five times to uncover the names of corporations receiving small business contracts. The SBA has consistently refused to provide them, even though taxpayer funds are at issue. Needless to say, the ASBL has won every case.

Shortly after taking office, Preston removed all information from the government's Central Contractor Registration (CCR) database that could be used to determine a firm’s size. By law, it must have fewer than 500 employees to be considered small. Private organizations, such
as Eagle Eye Publishers Inc., used the data to make independent assessments to determine whether the SBA is meeting its congressionally mandated goal; 23 percent of all government contracts must be awarded to small businesses.

Not surprisingly, the agency has repeatedly failed to hit that target. And on the occasions that it claimed it did, it was later discovered that billions of dollars in contracts actually ended up in the hands of large companies. In 2004, for example, Eagle Eye was hired to
examine small business contract awards in FY2002. It found that 44 major corporations had received more than $2 billion from the government under the contracting program. 

Over the past five years, the SBA, the Interior Department, the GAO, and the federal Office of Management and Budget have conducted 11 separate investigations into small business contracting, and all have concluded the same thing: The program is riddled with problems that
allow large corporations and other entities to take advantage of the system. Chapman says he has found reports identifying the same problems going back as far as 1995. 

The question is why hasn’t the government done more to correct the problems? Even Chapman has no ready answer. He believes it could require an investigation by the FBI to get to the real answer. But one thing is certain: The problems have grown worse during the Bush administration, says Chapman. As a life-long Republican, that’s a hard thing for him to say. For the first time in his life, he has endorsed a Democrat, Barack Obama, for president.

"We contacted all three campaigns to make them aware of it," he says. "The Clinton and McCain campaigns blew us off. Obama called us back and issued a press release, saying it's time to stop the diversion of small business contracts to large businesses. He may be the best
president for small businesses in 20 or 30 years. In fact, he may be the first pro-small business president in my lifetime."

When Congress passed the Small Business Act in the 1950s, it clearly laid out its goals. The mandate included aiding, counseling and protecting the interest of small businesses and insuring that "a fair portion of the total purchases and contracts or subcontracts for
property and services for the government... be placed with small businesses."

When the economy is struggling, the nation’s 23 million small businesses have traditionally been the catalyst that creates jobs and re-ignites growth. One of the best ways for the new administration to make sure they play that role again is to reinvigorate the SBA and re-focus it on its original mission: aiding and assisting small businesses -- real ones, that is.

Source:  www.allbusiness.com