News
The S.B.A. Puts the Best Face on Small-Business Contracting
By Robb Mandelbaum
The New York Times
August 24, 2009
The Small Business Administration took a victory lap Friday in the press release (pdf) that accompanied its annual scorecard rating the government on awarding contracts to small firms. In fiscal year 2008, which ended last Sept. 30, “small businesses won a record $93.3 billion in federal prime contracts,” the agency said, “an increase of almost $10 billion from 2007.” Moreover, “small disadvantaged businesses, women-owned businesses and service-disabled veteran-owned businesses increased their share of federal contracting dollars by at least $1 billion to $3 billion.”
That’s the S.B.A. for you, always bringing the good news. The whole story is, of course, more complicated and less complimentary to the bureaucracy. Here’s your annotated fact-check:
Though small-business contracting grew, the federal government fell short of its goals. The law of the land sets a goal — not a requirement — that the federal bureaucracy as a whole award at least 23 percent of prime contract dollars to small firms. Within that figure, there are sub-goals for disadvantaged small businesses (5 percent), small firms owned by women (5 percent) and service-disabled veterans (3 percent), and firms located within distressed areas known as HUBZones (3 percent). The S.B.A. negotiates with each agency to establish its individual goals.
In 2008, nominal small-business contracts accounted for just 21.5 percent of all eligible contract dollars. Not only is that below the goal, it’s worse than in 2007, when small businesses received 22 percent of the dollars. The federal government as a whole hasn’t met this goal since 2005.
In three of the four sub-goals, government agencies mostly made progress but still fell well short of the target. Only among “small disadvantaged businesses” did the government meet its goal — and actually exceeded it. But even that comes with a caveat: a provision of the law allows agencies to count as small disadvantaged business contracts deals made with large corporations owned by Alaska Natives. (And those companies are typically managed by well-paid white men, often veterans of government procurement.)
The figures are inflated because much federal spending is excluded from the goal calculation. Among such expenditures are purchases paid out of user fees or other operating funds (think the post office), instead of from Congressional appropriations. Agencies that don’t follow the standard acquisition regulations, such as the Federal Aviation Administration and the Transportation Security Administration, are also excluded. Nor are international contracts counted, which makes the dismal small-business performances turned in by the State Department and the United States Agency for International Development look even worse.
“Small businesses play a very important role in some of these categories, including foreign military sales and contracts performed overseas,” says Paul Murphy, whose Eagle Eye Publishers, of Fairfax, Va., analyzes federal procurement data. Mr. Murphy has been able to add some of the exclusions back in and found that they totaled $80 billion — which drops the small-business share of the expanded contracting pie to just over 19 percent.
Contracts to giant conglomerates are often counted as small-business contracts. According to data from July compiled by Eagle Eye, the No. 2 “small business” contractor in 2008 was Textron, a Fortune 500 company with $14. 2 billion in sales and 37,000 employees. No. 8 is QinetiQ, a British company — that that doesn’t seem right, does it? — with $2.3 billion in global revenue. No. 9 is ManTech International, which, with $1.9 billion in sales and 8,000 employees, proudly acknowledges that it has been ranked among “400 Best Big Companies in the nation.” Five of the remaining top 10 are among the aforementioned Alaska Native Corporations.
Typically this sort of miscoding occurs when a QinetiQ buys a small firm with federal contracts. Or buys a firm that bought small contractors — it used to be that it could keep the small-business designation for the life of those contracts, including options to extend that could stretch years into the future. The S.B.A. tightened those rules a couple of years back, and Mr. Murphy has since noted small improvements. “I think fewer dollars are being miscoded these days,” he says. (General Dynamics and Lockheed Martin, which were the eighth- and 19th-biggest “small business contractors” in 2005 dropped to 41 and 42 in 2008.) “But we’re still a few years away before the error rate is insignificant.”
Of course, some large companies willfully misrepresent themselves as small. Nobody knows the extent of such fraud, but as Lloyd Chapman, the head of the American Small Business League who has a made a federal case (literally!) out of protesting this malfeasance, pointed out to me a couple years ago for an article that ran in Inc. magazine, few firms are likely to be deterred by rigorous enforcement — as of a couple years ago, at least, not one firm had been prosecuted for falsely representing itself as small.
Senator Mary Landrieu, chairwoman of the Senate Small Business Committee, issued an anemic statement: “While I am encouraged by these numbers, I still see room for improvement,” etc., etc. — hardly the sentiment she would have expressed had it been the Bush administration releasing these numbers. Of course, the Obama administration should not be excoriated for reporting on the dismal performance of its predecessor, which confined its small-business agenda largely to cutting taxes and gutting regulation.
But history suggests that ignoring small business in the bureaucracy isn’t a partisan preference. If the numbers haven’t improved next year at this time, Democrats will not have an excuse to hold their fire.
Source: New York Times
