•  Billions of dollars diverted from small businesses, is charge

•  ‘I’m very disappointed, very disheartened’

Based on initial actions – or lack of action – President Barack Obama is continuing efforts by the Bush Administration to divert federal contracts meant for small businesses to Fortune 500 firms, contends Lloyd Chapman, president of the American Small Business League and a long-time critic of Small Business Administration management.

He says large U.S. corporations and some of the largest companies in Europe will continue to receive hundreds of billions of dollars in federal small business contracts through the year 2012.

In February 2008, Mr. Obama released the statement, "It’s time to end the diversion of federal small business contracts to corporate giants," says Mr. Chapman, but that stance seems to have changed.

Mr. Chapman says he feels betrayed by Mr. Obama, who had a pro-small business stance during the presidential campaign.

“I really thought we were going to get someone in the White House that was going to solve this problem,” says Mr. Chapman. “I’m very disappointed, very disheartened.”

(Lloyd Chapman offers his views in today’s CVBT Audio Interview. Please left-click on the link below to listen now or right-click to download the MP3 audio file for later listening.)

Mr. Chapman says he plans to “file a series of lawsuits” against the SBA over the money diversions.

“To me, it’s just unbelievable that in the middle of this horrible economic downturn, with so many Americans suffering, that we can’t get the President to simply adopt a policy to stop Fortune 500 corporations from hijacking contracts that by law should be going to small businesses,” Mr. Chapman says.

During the Bush Administration, 15 federal investigations and two private studies were released, says Mr. Chapman, which uncovered widespread fraud and abuse in virtually every federal small business contracting program.

He points to a March 2005 report from the SBA’s inspector general that said, "One of the most important challenges facing the Small Business Administration and the entire Federal government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards."

The American Small Business League estimates that every year as much as $100 billion in federal “small business” contracts is diverted to Fortune 500 firms and other large businesses. No specific plans to address the billions in fraud and abuse in federal small business contracting programs have been proposed by President Obama so far, says Mr. Chapman.

“Seven years of investigations, 500 stories in the press, and it’s still going on,” Mr. Chapman says. “It’s unprecedented. There’s never been a problem in our nation’s history that’s gotten this much attention and hasn’t been addressed.”

Venture capitalists may be gaining influence at the expense of small businesses as a result of President Barack Obama's pick to lead the Small Business Administration, a small business advocacy group warns.

The American Small Business League is worried that Obama's appointment of venture capitalist Karen Gordon Mills to head the SBA is a sign that venture capital agendas may advance this year, in some cases to the detriment of small businesses and small-business federal contractors, said Chris Gunn, a spokesman for the group based in Petaluma, Calif.

A case in point is the upcoming reauthorization of the Small Business Innovation Research program. There is language in both House versions of the legislation that would allow more venture capital firm investment in companies participating in the program, Gunn said.

“It sets a dangerous precedent for that and for other small-business programs,” Gunn said. “We do not want to see an expansion of the definition of small business. We are trying to tighten the definition.”

Mills is president of private equity firm MMP Group, co-founder of venture capital firm Solera Capital, and an adviser to Maine Gov. John Baldacci.

The appointment of a venture capitalist to head the SBA and apparently missing statements from his campaign website are leading some to doubt Obama's pledge to small business owners.

According to the American Small Business League, President Obama is likely to support a change to the federal definition of small business as "independently owned."

This move would open the door for others - specifically venture capital firms and larger corporations - to garner government contracts intended for small businesses.

"Since 2003, over a dozen federal investigations that have uncovered billions of dollars in federal contracts intended for small businesses actually wound up in the hands of Fortune 500 firms," says the organization.

The ASBL worries that Obama's former pledge to end the awarding of these contracts to "corporate giants" will be forgotten and small businesses could lose up to $100 billion a year in projects. The organization claims some statements about Obama's small business agenda were removed from his website.

Already feeling battered, the National Federation of Independent Business Small Business Optimism Index fell to the second lowest reading in the survey's 35-year history in December.