SMB Contracting: A Litmus Test for President Obama


SMB Contracting: A Litmus Test for President Obama

By Keith Girard
August 27, 2009

It was no secret in Washington that the Bush administration had little regard for the Small Business Administration. During his two terms in office, the agency’s budget and staffing were cut every year, opening the door to waste and fraud and forcing many programs to operate on a shoestring.

The Republican administration’s big business bias was all too apparent in the way the SBA dragged its feet when it came to cleaning up the awarding of federal contracts to small businesses, long a problematic program in which billions of dollars annually always seem to end up in the pockets of Fortune 500 companies.

The Obama administration, of course, promised sweeping change. The president even wooed small businesses during the campaign and picked an experienced administrator to lead the agency.

But the real litmus test of the administration’s commitment to change — and to small businesses — will be how effectively it deals with long-standing contracting abuses. The new Obama SBA went through its first rite of passage on the issue last Friday when it released its annual “score card” on small business contract awards.

Congress has set a goal requiring the government to award 23 percent of all federal contracts to small entrepreneurial firms. The idea is to give them a leg up, so one day they can become large firms and major employers.

In its press release, the agency claimed that small businesses had received a record $93.3 billion in federal prime contracts during the 2008 fiscal year, up almost $10 billion from 2007. Of that amount, almost $3 billion went to disadvantaged businesses, women-owned businesses, and businesses owned by service-disabled veterans. That’s up about $1 billion over last year.

While the numbers are impressive, the agency failed to meet its congressionally mandated goal for the fifth year in a row. What’s more, this year is worse than last. Just over 21.5 percent of all eligible contract dollars went to small firms, compared with 22 percent in FY 2007.

Eagle Eye Publishers, a Washington area firm that tracks federal contracting, puts the actual FY 2008 figure closer to 19 percent once a wide range of “exclusions” (contract awards not counted when figuring the goal) are added back in. Exclusions include contracts paid for from funds other than congressional appropriations, such as user fees, and contracts awarded overseas.

“No amount of positive spin by the Small Business Administration can make up for the over $30 billion lost in FY 2008 due to the federal government's failure to meet small business contracting requirements,” said Cris Young, president of the National Association of Small Business Contractors, in a statement.

“This is not a single-year accident. The federal government has failed to meet its small business contracting requirements for the past five years,” he added. “We have called for fair access to contracts for years. Instead we get promises and press releases.”

The SBA reported, however, that it exceeded its contracting goal for disadvantaged small businesses. Government awards topped 6.6 percent, compared with a 5 percent goal. But it still missed goals for women-owned firms, service-disabled vets, and HUBZone firms.

On even closer examination, critics note that major corporations still seem to have their hand in the till, largely winning awards through smaller affiliates.

“Of the 10 largest recipients of federal small business contracts, eight of the firms were clearly large businesses and received 85 percent of the total contract dollars,” said Lloyd Chapman, president and founder of the American Small Business League. “Of the top 100 recipients, 64 percent of the contract dollars went to large businesses.”

Chapman has been a leading critic of the SBA’s contracting oversight, and during the presidential campaign his organization endorsed Obama, hoping for change. He says the SBA has been fabricating and inflating data on small business contracting awards for nine years, and he fears it will be business as usual under the new administration.

Chapman contends that Textron was the single largest recipient of federal small business contracts last year, and it’s a Fortune 500 firm with 43,000 employees and over $14 billion in annual revenue. He says Textron raked in $775.8 million in contracts through their AAI division.

Other firms on the receiving end of small business contracts include: British Aerospace (BAE), Rolls-Royce, General Electric, Xerox, Office Depot, Staples, Dell Computer, AT&T, Hewlett-Packard, 3M Corporation, General Dynamics, Booz Allen Hamilton, Northrop Grumman, L-3 Communications, GTSI, Raytheon, Boeing, and Lockheed Martin, he says.

To address the contracting shortfall, Commerce Secretary Gary Locke and SBA Administrator Karen Mills have announced a new government-wide plan. Federal agency procurement officials will hold or participate in more than 200 events over the next 90 days to “share information on government contracting opportunities” with small firms.

“President Obama has made a commitment to ensuring that small businesses have greater access to federal contracting opportunities and it is a commitment shared across this administration,” Mills said in a statement.

“We have already begun taking aggressive steps to connect small businesses with contracting opportunities, as well as increase our outreach to federal agency procurement officers to make sure they get the information and tools they need to help them connect with these good, innovative, small companies,” she added.

But Chapman notes that during the campaign Obama promised to restore the SBA budget, restore the SBA Administrator to a cabinet-level position, and implement a long-delayed 5 percent woman-owned small business contracting goal. “Not one of these campaign promises has been honored,” he says.

The jury is still out on the Obama administration’s true commitment to small businesses. Despite the press releases, the posturing, and the promise of procurement fairs, the real litmus test for reform will be the administration’s commitment to cleaning up the contracting mess. It has been a sore spot for far too long. Much of what went on during FY 2008 was not on this administration’s watch. But it won’t have that excuse next year.


Obama Breaks Campaign Promise and Gives Billions to Corporate Giants

Press Release

Obama Breaks Campaign Promise and Gives Billions to Corporate Giants

August 27, 2009

Petaluma, Calif. – In 2005, the Small Business Administration Office of Inspector General (SBA OIG) released Report 5-15, which referred to the diversion of billions of dollars in federal small business contracts to corporate giants as, "One of the most important challenges facing the Small Business Administration (SBA) and the entire federal government today." (  

Since 2003, over a dozen federal investigations have found that legitimate small businesses have lost billions of dollars in federal small business contracts, which have been diverted to many of the largest firms around the world.

During his campaign President Obama promised to halt the rampant abuses and released the statement, "It is time to end the diversion of federal small business contracts to corporate giants." (  

On August 21, 2009, the Obama Administration released the latest statistics on the volume of federal contracts awarded to small businesses. The fact that the Obama Administration's small business data is littered with the names of thousands of corporate giants from around the world is an obvious indication that President Obama has gone back on his campaign promise.

The Obama Administration is claiming that the government awarded $93.3 billion in contracts to small businesses or 21.5 percent during fiscal year (FY) 2008.

According to information from the Federal Procurement Data System - Next Generation (FPDS-NG), of the ten largest recipients of federal small business contracts, 85.4 percent of total contract dollars went to large businesses. Eight of the top ten recipients were large businesses.

The top recipient of federal small business contracts was Textron with $775 million. Textron is a Fortune 500 firm with 43,000 employees and over $14 billion in annual revenue.

Two other top ten recipients, Ssangyong Corporation headquartered in Seoul, South Korea received over $254 million in small business contracts and Finmeccanica SpA, headquartered in Italy with 73,000 employees and received over $283 million.

The 14th largest recipient of federal small business contracts is listed as, "Miscellaneous Foreign Contractors" with $210 million in government small business contracts.

Other firms included in the Obama Administration's small business data were Lockheed Martin, Boeing, Raytheon, Northrop Grumman, General Dynamics, AT&T, 3M Corporation, Xerox, Dell Computer, Booz Allen Hamilton, Hewlett-Packard, General Electric, Staples, Office Depot, British Aerospace (BAE), Rolls-Royce and French firm Thales.

The American Small Business League estimates that the diversion of federal small business contracts to corporate giants pulls over $100 billion a year from the middle class economy.


Please click here to watch our response to the Obama Administration's small business contracting statistics:  

What Happened to the Small Business Share of the Federal Pie?


What Happened to the Small Business Share of the Federal Pie?

By Kent Bernhard Jr
August 26, 2009

Depending on how you look at it, the government missed its small-business contracting goal by a little, or a whole lot.

The government came out with its reckoning of small-business contracts this week and put the value of contracts awarded to small businesses at $93.3 billion in 2008, up $10 billion from 2007, and a record for such contracts. But that number still fell short of the Congressional mandate that 23 percent of government contracts go to small business. Only 21 percent of contracts went to small business, according to the government’s estimate.

Those are the government’s numbers.

But if you listen to advocacy group American Small Business League, the government shortchanged small business by a lot more than 2 percent.

The ASBL says the number’s more like 7 percent of government contracts going to small business. The group points out that since 2003, federal investigations have found that officials regularly cook the books when it comes to reporting small-business contracting, and 2008 was no exception.

The government, the ASBL claims, excludes large contracts as not being “small-business eligible,” taking a big chunk of government contracting out of the accounting for small-business contracts. The group also says some of the firms that made it into the government’s list of small businesses included Lockheed-Martin, Northrop-Grumman, Boeing, and Raytheon. Those are some thriving small businesses, all right.

After analyzing contracting data since 2000, ASBL claims small businesses have lost an average of $100 billion a year in contracts that should have gone to them.


Stimulus plan shortchanges small business


Stimulus plan shortchanges small business

Smaller companies are heart of our economy

By Staff Editorial
Bradenton Herald
August 26, 2009

Out of the $787 billion contained in the American Recovery and Reinvestment Act, a paltry $730 million is being directed to the Small Business Administration to help loosen up the tight credit market.

According to Census Bureau statistics, 98 percent of the country’s companies employ fewer than 100 people yet account for 97 percent of all net new jobs.

And those small businesses provide jobs to 50.2 percent of the private sector workforce and more than 90 percent of technical innovations and patents.

The American Small Business League reports another startling census figure: Large businesses have not created one net new job since 1977.

Small business is getting the very short end of the stimulus stick. Recovery plans fail to adequately address the likely savior of the economy.

Rep. Vern Buchanan, R-Longboat Key, discussed that imbalance Thursday at a luncheon with Manatee County business leaders, putting a total stimulus investment in small business at $21 billion — only 3 percent of the total.

“This has been the most anti-small business administration I’ve seen,” he told the gathering.

Looking at the census data, the road to recovery looks like it will be mostly dependent on small business. So why isn’t the Obama administration directing more resources toward the country’s employment and innovation backbone?

One program appears lacking at this point.

The SBA’s effort to unlock the loan market offers incentives to lenders — such as guaranteeing so-called emergency microloans of $35,000 — yet financial institutions remain tight-fisted.

While the banking industry blames excessive SBA red tape, others point to the low profit margin over the six-year life of the $35,000 loans and the resulting reluctance from lenders to get involved.

These emergency bridge loans — budgeted at $255 million of the total SBA allocation of $730 million — could save thousands of small businesses, but only a small percentage of the money has been extended since the program launched in mid-June.

Financial institutions should be considering the long-term viability of local economies, extending these interest-free loans to struggling small companies with the goal of keeping them in business and retaining jobs, all to keep money flowing around a community — and back into bank vaults.

But the SBA should make this program less onerous on lenders, too, by eliminating and streamlining some of the paperwork.

The American Small Business League cites another major problem, this concerning government contracts allocated to small companies but ending up with corporate giants.

Over the past six years, numerous federal investigations found that billions in government contracts earmarked for small business instead went to Fortune 500 companies. The league concluded that the Obama administration’s recovery plans continue that outrageous practice.

The administration and Congress must step up with legislation banning the diversion of small-business contracts to large companies.

Buchanan pledged to seek greater assistance for small businesses in a meeting with the Herald’s Editorial Board. We would expect nothing less from a successful businessman.

If the stimulus package is all about saving and creating jobs, small business must receive far greater attention. As census figures show, as small business goes, so goes America.


Whom Does the N.F.I.B. Represent (Besides Its Members)?


Whom Does the N.F.I.B. Represent (Besides Its Members)?

By Robb Mandelbaum
The New York Times
August 26, 2009

A few weeks back, You’re The Boss readers rose up in mild insurrection against The Agenda. The occasion was a look at the Small Business Majority, a liberal organization trying to influence the health care debate. Readers thought The Agenda was unfair. “Subject the other business organizations to the same analysis and you would find AT LEAST as much ideology and partisan bias as the author has found on the Small Business Majority,” wrote one critic. Citing the National Federation of Independent Business, she added, “A few years ago, the N.F.I.B. contributed 95% of its PAC money to Republican candidates.” Another offered: “The N.F.I.B. on any piece of legislation will be slanted towards the leanings [of] the paying membership and, thus, not representative the feelings of all small businessmen.”

Not surprisingly, Democrats in Washington tend to agree. “There are lots of small businessmen who are liberal Democrats — they’re not members of the N.F.I.B.,” Bert Carp, a lawyer and veteran Democratic lobbyist, told me in the spring. “Their membership is self-selecting. And they select the issues that they go to their membership on.”

Many people identify the federation as the leading — or at least the loudest — lobby for small business, and its presumed partisan leaning is something I spent a lot of time thinking about this year. In the course of a long look into the organization, I talked to dozens of people: current and former N.F.I.B. lobbyists, current and former aides on Capitol Hill, and other lobbyists. Some of the results of that investigation were published in the September issue of Fortune Small Business, as a study of the N.F.I.B.’s role in the health care debate (including surprising alliances with Democrats and a labor union).

It was in the course of this reporting that I met Denny (born William) Dennis, the head of the N.F.I.B.’s Research Foundation. Mr. Dennis has what may be the messiest office at the N.F.I.B.’s Washington headquarters. His desk, like the bank of file cabinets off to one side, is piled high with binders, spiral-bound reports, and printouts of think-tank studies and surveys. The bookcases behind him are lined with scholarly journals.

Mr. Dennis is responsible for the raft of information that the N.F.I.B. produces about small businesses, including frequent polls and monthly economic reports. He is clearly suited for the work, at ease in a universe of regression models and statistical minutiae. “There has been very little small-business-specific information available,” he said. “It’s not like it’s growing on trees, so we have to develop our own sources frequently.” Besides the research that Mr. Dennis oversees, the organization regularly sends ballots to its members on national controversies affecting small business. The results help shape the N.F.I.B.’s stance. Generally, it won’t take a position on an issue unless it can marshal the support of at least 70, and probably closer to 80, percent of the membership.

The N.F.I.B. uses Mr. Dennis’s mountain of data — evidence that it is simply executing its members’ wishes — as a fortification against the charge that it is nothing more than a wholly owned subsidiary of the G.O.P. And Mr. Dennis insists that N.F.I.B. members believe no differently than small businesses at large. To prove it, he printed off a PowerPoint presentation that compares 500 randomly chosen N.F.I.B. members to 500 small employer firms randomly chosen from the Dun & Bradstreet database. (The Agenda discussed these side-by-side polls here.) To 36 questions on policies and priorities, asked by the polling firm Mason-Dixon, the two samples responded roughly the same, usually conservative by a wide margin. Curiously, the N.F.I.B. sample was slightly more inclined (though still not very inclined) to raise income and payroll taxes for top earners.

What, then, accounts for the entrepreneurs who vote Democratic? As Agenda readers would be the first to tell me, there are many, or at least many more than that N.F.I.B. survey would suggest. In a poll of small-business owners, commissioned by American Express OPEN and taken a year ago, 33 percent of the respondents identified themselves as Republicans and 32 percent called themselves Democrats. Twenty-nine percent said they were independent or claimed no party affiliation. (The sample was taken from a national list of businesses with 100 or fewer employees. The margin of error was plus or minus 4 percentage points. A general press release about the poll, which asked respondents about a broad array of issues, is available here.)

Mr. Dennis insisted the surveys are consistent. “We work on economic issues only, and for the most part, small businesses, whether they’re Democrats or Republicans tend to come out on those specific issues much like many of the Republicans do,” he said. “They tend not to want government interference, and they tend not to want high taxes, and all those sorts of things.” Or, as one former N.F.I.B. lobbyist put it, “People join N.F.I.B. because they want somebody in Washington who’s going to say no.”

But, Mr. Dennis added, “there are also a lot of Democrats in the small-business population that, for example, on the social side — which we take no position on at all — prefer the Democrats.” What determines an entrepreneur’s politics, he says, is not what he believes on an issue but how strongly he cares about it. In the OPEN survey, 24 percent of Republicans and 31 percent of those who claim no party affiliation said taxes would have the most influence on their vote, but only 8 percent of Democrats did. Conversely, 15 percent of the Democrats said Iraq was the most important issue, a much higher figure than in any of the other groups.

“The one thing that’s really interesting about small businesses when you poll them is they’re half business, half person,” Mr. Dennis continued. “When you poll big-business guys, they put on their big-business hat and everything is pretty much a business answer. You ask the public and you get a personal answer. We’re in the middle — they clearly are some of both.”

It is as plausible an answer as any The Agenda has heard. And it leads to another important question about the N.F.I.B.: does it represent its members’ interests, or their passions? For that matter, is there a difference? We’ll take that up soon, in another post.