WHILE THE FEDERAL GOVERNMENT RESCUES Wall Street, small business owners on Main Street are crying foul, charging that federal contracts intended for them continue to get awarded to large corporations. Over the past six years, more than a dozen federal investigations have found large corporations to be the actual recipients of the lion's share of federal small business contracts, according to the American Small Business League (ASBL), a Petaluma, California-based policy advocate group. Lax regulation in Washington has contributed to this ongoing problem much like deregulation on Wall Street led to the current financial crisis.

In July, the U.S. Department of the Interior Office of Inspector General released a study uncovering $5.7 million in awards to large firms credited as small businesses in fiscal years 2006 and 2007. Among those identified were large, publicly traded corporations including Home Depot, Dell, John Deere, Xerox, and Sherwin-Williams.

But ASBL says that figure is only a small slice of a larger pie, claiming the DOI had actually awarded more than $430 million to corporate giants and their subsidiaries. "We believe that between 50% and 86% of all federal small business contracts are actually awarded to some of the largest corporations in the United States and Europe," says ASBL President Lloyd Chapman. "That means small businesses are losing in total $65 billion to $100 billion per year to firms like Hewlett-Packard, General Electric, and Raytheon."

The ASBL accuses the George W Bush administration and federal agencies, including the General Services Administration and Small Business Administration, of willingly diverting billions of dollars in small business contracts to large corporations. In its defense, the DOI report states that large businesses have been incorrectly coded as small businesses due to data entry mistakes, reliance on incorrect data, and not contacting officials to verify business size reported in the Central Contractor Registration.

For Richard Copeland and other small business owners, there is simply no justification for what is happening. "Contracts are a small fraction of the work issued by the government that goes to small businesses," says Copeland, CEO of Thor Construction (No. 66 on the BE INDUSTRIAL/SERVICE 100 list with $63.6 million in sales) and president of the National Minority Contractors Association, an advocacy and member trade group. "For that small fraction to be eroded by lack of diligence and system errors only compounds the problems that minority contractors and small businesses face. Without equal access we continue to lose ground in the effort to be on parity in the mainstream economy."

Karen Hontz, director for government contracting for the SBA, is quick to point out that incorrect size classification in the federal procurement data system-next generation database can be partly attributed to mergers. She explains that when a company such as Home Depot acquires a small business that may have already won a contract with the government, that contract's classification may remain as is. A small business is defined by the SBA as one that contains between 50 and 500 employees, or has revenues between $750,000 and $31 million. "The recertification rule went into effect on June 30, 2007, that said if there was a merger of two small companies, and that acquisition made the company big then they could no longer classify themselves as a small business," says Hontz. This rule is also valid if a large company were to buy a smaller company. However, if a company merged prior to June 30, then it would be shown as a small business until corrected in the register. "It will eventually take care of itself," Hontz adds. "When you've got 12 million contracting actions going on daily, people make mistakes and check the wrong box."

Small business advocates argue that it has taken six years for such mistakes to be corrected, with no solid solution in sight. The issue of small businesses losing out on federal contracts dates back to September 2002, when the SBKs Office of the Inspector General first received numerous complaints. Since 2003, 13 federal investigations and two private studies have all found widespread abuse, fraud, loopholes, and a lack of oversight in federal small business contracting programs, says Chapman, an outspoken critic of the SBA.

Thomas Boston, professor of economics at Georgia Tech, CEO of EuQuant, and member of the BLACK ENTERPRISE Board of Economists, conducted the study Increasing the Capacity of the Nation's Small and Disadvantaged Businesses, examining government small vendors. The 2007 report, commissioned by the Congressional Black Caucus, found 442 large companies listed under the federal government registry as small businesses. The average revenue of small businesses that are federal government vendors was $3 million, Boston notes, whereas the average revenue of the large firms was $172 million.

"Fraudulently registered large businesses have a particular advantage over legitimate small businesses and minority businesses," he says. "The way the program is currently structured and the continued unwillingness to severely penalize large businesses that fraudulently register as small businesses is taking away business opportunities from minority and small businesses. This issue should be addressed as a No. 1 priority."

ASBL has been pushing for Congress to pass legislation to stop the abuse. The Small Business Contracting Revitalization Act of 2007 (S. 2300), drafted by Senators John Kerry (D-Mass.) and Olympia J. Snowe (B-Maine), seeks to close the loopholes in small business contracts that have allowed large companies to prosper. The bill aims to reduce contract bundling; prevent misrepresentations in subcontracting by prime contractors; extend the 8(a) contracting program through 2012; and expand opportunities for minority, women, and service-disabled entrepreneurs

Kerry, chairman of the Senate Small Business and Entrepreneurship Committee, notes that by law, 23% of federal contracting dollars are supposed to go to small business, a benchmark not being met.

"Sadly, businesses lose billions of dollars in lost opportunities because of loopholes in our contracting system," says Kerry. "I've fought to close these loopholes and add accountability and oversight. We need to strengthen programs to level the playing field for small business firms."

Rep. Benny G. Thompson (D-Miss.) acknowledges that there is a problem. "Unfortunately, we do not know how big this problem may be because there's been no effort to systematically review the database entries. The SBA's Office of Inspector General has found these potential data errors could be easily corrected. To date, those corrections have not been made." Thompson says government-wide procurement reform has not occurred but there have been limitations placed on practices that undermine the ability of small businesses to prosper as subcontractors.

Thompson adds that small and minority businesses have been marginalized in several ways: lead integrator contracts that misuse small and minority businesses, no opportunities to compete due to contract bundling, and large businesses posing as small to get contracts.

According to the SBA Office of Inspector General's Oct. 16, 2007, financial report, the agency has made substantial progress in implementing a program that promotes accurate contractor certification. It further states that the SBA is ensuring federal agencies accurately report the number of contracts they award to small businesses. However, in his statement for the report, former Inspector General Eric M. Thorson admits there has been limited progress in regard to issuing regulations that require firms to meet size standards, and providing adequate educational training on small business contracting procedures.

At press time, the SBA had refused to release its goaling report for fiscal year 2007, which outlines whether the agency met its 23% procurement goal for the past yeas In September, the agency suspended taking applications for the small disadvantaged business program, Chapman says. He adds the SBA's funding cut and the firing of employees within the SBA that ensured minority-owned businesses got their fair share of contracts, is "astonishing" and "disappointing."

SBA officials declined to respond to Chapman's allegations and declined a request for an interview on this matter.

"Small businesses and minority business owners are not getting anywhere near the volume of federal contracts they're supposed to by federal law," Chapman says. "If Congress does not pass legislation to stop this, it's going to threaten the futures of business owners, and opportunities for people to start new businesses will be severely limited as money is diverted to large corporations."

Source:  http://www.entrepreneur.com/tradejournals/article/190747797.html

(Fortune Small Business) -- Small businesses drove much of the employment growth in July, according to a report released Wednesday by payroll manager Automatic Data Processing (ADP, Fortune 500). Firms with fewer than 50 workers added 50,000 new non-farm jobs to the private sector this month, which offset the 41,000 jobs dropped at medium and large companies.

ADP partnered with research firm Macroeconomic Advisers to measure the change in headcount at 400,000 of ADP's U.S. clients. Most gains came in the services sector, which includes fields such as education, financial services, health, hospitality, retail and transportation. Small services firms added 56,000 new jobs in July, according to ADP's count.

Small companies are a reliable source of new jobs: While businesses with 50 or more employees have posted net job losses for the past six months straight, small-business employment has expanded every month since November 2002, according to ADP's study. Last month, with a net gain of 7,000 workers, was the smallest increase in six years.

"Small businesses have been somewhat of the employment savior," said researcher Joel Prakken, chairman of Macroeconomic Advisors. "When I look at this report, I see a continuation of a pattern that's been in play for a while. We have a sharp contraction going on in manufacturing and construction, offset roughly by continued, modest expansion in the service sector."

Small businesses weren't immune to the downturn in contracting industries: employment at "goods-producing" small companies, which include manufacturing, mining and construction businesses, dropped by 6,000 jobs in July, according to ADP. Even at small companies, that sector hasn't shown job growth since June 2007.

ADP's findings offer some uplifting news amid a troubled economic landscape. The Labor Department reported a net loss of 62,000 jobs in June, marking the sixth straight month of decline. Recent surveys suggest that while entrepreneurs are still hiring, they're anxious about the economy: 80% of small-business owners polled by Suffolk University earlier this month said they think the country is in an economic recession, and 86% feel the government isn't doing enough to help small businesses.

The latest installment of the Small Business Economic Trends Report, a monthly study from the National Federation of Independent Business (NFIB), found that optimism among those polled is the lowest its been since 1986.

Even Prakken points out that his firm's findings do not suggest a strengthening economy: "If you look at our numbers for small-business employment growth, you'll see that employment is not growing as quickly as it was two years ago," he said. "I expect overall employment numbers to continue to be weak going forward for medium and large business, but they will be offset by modest gains in small businesses."

In the NFIB's June report, 14% of the business owners polled said they plan to create new jobs in the next three months, while 8% said they foresee staffing reductions.

"[Small-business owners] are more cautious about hiring, but they are still moving forward and still creating jobs out there," NFIB chief economist William Dunkelberg said.

Macroeconomic Advisers' Prakken, a small-business owner himself, views even modest employment creation among small businesses as a sign that the U.S. is still innovating.

"I'm always happy to see small-businesses numbers up, because it means that even in a soft economy, entrepreneurs are still looking for ways to expand and grow," he said. "A lot of dynamism in the U.S. economy comes from the creation of new businesses."  

Source:  http://money.cnn.com/2008/07/30/smallbusiness/job_creation.fsb/index.htm

Having positioned himself as a small-business ally on the campaign trail, it didn't take long for President Barack Obama to take aim at the embattled SBA. As far as small-business advocates inside and outside the Washington Beltway are concerned, any initiatives undertaken by the Obama administration to make the SBA more small-business friendly couldn't come soon enough, given the condition of the agency and the U.S. economy.

The American Recovery and Reinvestment Act, aka the economic stimulus package, the first major piece of legislation offered by the Obama administration, includes various provisions to aid small businesses as a means of reinvigorating the sagging U.S. economy. Count lawmakers such as Sen. Mary Landrieu (D-La.), incoming chairwoman of the Senate Committee on Small Business and Entrepreneurship, among those who are welcoming such provisions, as well as Obama's nomination of Karen G. Mills to lead the SBA, as harbingers of major--and, they say, much needed--change at the agency.

"The small-business provisions in the stimulus package are certainly steps in the right direction, but there is still much work left to be done," says Landrieu, whose wish list for the SBA includes increasing the agency's operating budget, elevating its administrator to cabinet-level status and making its lending programs friendlier for small businesses. As currently configured, the stimulus package circulating on Capitol Hill includes proposals to temporarily eliminate fees associated with loans guaranteed by the SBA through the popular 7(a) and 504 loan programs, proposals designed to reverse a trend that has seen 7(a) lending decrease more than 56 percent, and 504 lending by 42 percent, in the current fiscal year, according to Landrieu. It would also infuse the SBA's microloan program with additional funding.

The first order of business for Landrieu's committee is confirming Mills. Beyond that, she says, "it's too early to tell what further steps President Obama will take, but I have high hopes that we will be able to restore funding to the SBA, improve effectiveness of SBA's services to small businesses and stimulate interest in small-business issues nationally."

To help right an agency that, she claims, has suffered "years of neglect," Landrieu's committee is expected to push to make permanent some of the relief measures in the stimulus plan, including scaling back or eliminating fees associated with the key 7(a) and 504 loan programs. The SBA's 7(a) program is the agency's most basic and most popular lending initiative; the 504 program is a longer-term financing vehicle. Cutting fees associated with those programs, Landrieu says, is a first step "to alleviate the credit crunch that's strangling our small businesses."

It's programs like these, she says, that make the SBA indispensable to American small business. Given the vital support role the SBA plays, Landrieu and other small-business advocates are calling on the Obama administration to restore the cabinet-level status the agency had during the Clinton administration. Doing so "makes a lot of sense," says Keith Ashmus, president of the National Small Business Association, because it could ensure small business a larger role in the economic recovery. With a seat on the cabinet, adds Landrieu, the SBA administrator "could be a more effective champion for our small businesses, especially in the areas of tax policy, health care, innovation, international trade and economic development."

The administrator post likely will go to Mills, 54, whose background includes a mix of corporate, venture capital and entrepreneurial credentials. "Small business will be an important focus of this administration," she said in accepting President Obama's nomination in December, "as we work our way through these difficult economic times and as we grow the economy in the future."

A member of the Obama transition team, Mills, who resides in Brunswick, Maine, is a founding partner of the equity firm Solera Capital. She has served as president of MMP Group, another private equity firm, while also holding director seats with Scotts Miracle-Gro, Arrow Electronics Inc., and the Maine Technology Institute. On the public policy front, Mills chaired Maine's Council on Competitiveness and the Economy and as Maine Technology Institute President Betsy Biemann notes, Mills co-authored a 2008 paper for the Brookings Institute outlining a plan to make the federal government a catalyst to development of small-business technology "clusters" as a means of stimulating regional economic growth.

Mills "understands the challenges facing small companies in a rural state like Maine, but also knows the world of venture capital in more urban settings," Biemann says. "She is familiar with the landscape of federal and state resources available to small businesses. She is smart and results-oriented. I think she will make a terrific SBA administrator."

One of the most pressing tasks for the incoming SBA administrator, small-business advocates agree, will be to restore agency infrastructure they feel was dismantled by the Bush administration. The SBA operating budget, according to Landrieu, stood at about $500 million in 2008, down 26 percent from 2001 levels. It should be closer to $10 billion, according to Lloyd Chapman, president of the American Small Business League and a long-time critic of the SBA and Bush administration policies. Chapman and Ashmus agree that a funding infusion is needed to reopen and restaff SBA field offices. According to Landrieu, women's business centers, small-business development centers, microloan programs, veteran business outreach centers and the SCORE program--which offers counseling for small businesses--also lack adequate funding.

But there's more lacking at the SBA than just funding, small-business advocates say. Chapman suggests the Obama administration's top priority should be to put a halt to SBA practices that he alleges have led to wrongful diversion of billions of dollars in government contracts from small business to large corporations. Ashmus wants a stronger, independent Office of Small Business Advocacy within the SBA. Landrieu says the agency's much-maligned disaster relief program also may require additional reforms.

Soon they could be lining up to bend Mills' ear on those very subjects.

Source:  http://rss.msnbc.msn.com/id/29258989/