The Small Business Jobs Act being pushed by President Obama contains a loophole that will legalize contracting fraud while protecting large fraudulent businesses from prosecution, and stands in stark contradiction to a campaign promise made by President Obama.

In February of 2008, President Obama stated, “It is time to end the diversion of federal small business contracts to corporate giants.” (http://www.barackobama.com/2008/02/26/the_american_small_business_le.php) President Obama made this statement to address ongoing fraud and abuse in federal small business contracting programs that cost small businesses over $100 billion a year in missed contract opportunities. Federal law currently mandates that a minimum of 23 percent of all federal contract dollars go to small businesses.

Since 2003, there have been over a dozen federal investigations, which have found Fortune 500 firms and thousands of large companies around the world as the actual recipients of federal small business contracts. The Small Business Administration’s (SBA) Inspector General has listed this problem as the number one management challenge facing the agency for the past five consecutive years and referred to this problem as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documentlibrary.html)

Section 1341 of H.R. 5297, the Small Business Jobs Act, contains specific language that will allow the SBA to develop policies and procedures to protect large businesses that have misrepresented themselves as small businesses from prosecution for felony contracting fraud. Section 16(d) of the Small Business Act prescribes a penalty of up to ten years in prison and a fine of not more than $500,000 per occurrence for firms that have misrepresented themselves as small businesses.

Some of the firms that have received government small business contracts include: Rolls-Royce, British Aerospace (BAE), Lockheed Martin, Boeing, Northrop Grumman, L-3 Communications, SAIC, Titan Industries, Raytheon, Dell Computer, Xerox, French firm Thales Communications, Italian firm Finmeccanica SpA, and Ssangyong Corporation headquartered in Seoul, South Korea. Textron, a Fortune 500 firm, received over $775 million in federal small business contracts in a single year.

“It is unbelievable that President Obama is going to create a loophole to benefit the corporate giants he promised to kick out of federal small business contracting programs,” ASBL President Lloyd Chapman said. “When you see President Obama on television, I want every American to realize that his administration is giving over $1 million a minute in small business contracts to some of the largest companies in the world.”

President Barack Obama and Congress are pushing for passage of the Small Business Jobs Act, which contains a dangerous loophole that could encourage billions of dollars in fraud in small business contracting programs.

Section 1341 of H.R. 5297, the Small Business Jobs Act, contains provisions that would allow the Small Business Administration (SBA) to develop policies and procedures that would protect large businesses that have misrepresented themselves as small businesses from prosecution for felony contracting fraud.

Since 2003, over a dozen federal investigations have found billions of dollars a month in federal small business contracts have been diverted to Fortune 500 firms, large businesses throughout the U.S., and some of the largest companies in Europe.

In 2005, the SBA Office of Inspector General (SBA IG) referred to the diversion of federal small business contracts to large businesses as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documents/05-15.pdf)  

In Report 5-16, the SBA IG found that large businesses had received federal small business contracts fraudulently by making “false certifications” and “improper certifications.” (https://www.asbl.com/documents/05-16.pdf)  

According to the U.S. Census Bureau, small businesses create over 90 percent of all net new jobs. (http://www.sba.gov/advo/research/rs359.pdf) Recent surveys conducted by small business organizations such as the American Small Business League (ASBL) and the National Federation of Independent Businesses (NFIB) show that the most important issue for small businesses is an increase in demand.

“If President Obama and Congress were serious about creating jobs, they would not have included language in this bill that will make it more difficult to prosecute fraudulent contractors,” ASBL President Lloyd Chapman said. “The focus must be on ending fraud and abuse in federal small business contracting programs so that they can be utilized as a means of driving demand into the hands of the small business community. That is how we must create jobs.”

Petaluma, Calif. – On behalf of America’s 27 million small businesses, the American Small Business League (ASBL) has asked Speaker of the House Nancy Pelosi to remove language in H.R. 5297, the Small Business Jobs Act, which may allow large businesses to receive federal small business contracts without fear of prosecution for felony contracting fraud. (www.asbl.com/documents/20100916_LTR_SPKPelosi.pdf)  

Since 2003, a series of federal investigations have found billions of dollars a year in federal small business contracts are diverted to Fortune 500 firms and some of the largest companies around the world. (https://www.asbl.com/documentlibrary.html) Some of the firms that are currently receiving federal small business contracts include: Lockheed Martin, Boeing, Raytheon, L-3 Communications, British Aerospace (BAE), Northrop Grumman, General Electric, Booz Allen Hamilton, Thales Communications, General Dynamics, and Dell Computer.

In Report 5-15, the Small Business Administration Office of Inspector General (SBA IG) referred to the diversion of federal small business contracts to corporate giants as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documents/05-15.pdf)  

In Report 5-16, the SBA IG found large businesses had received federal small business contracts illegally by making “false certifications” and “improper certifications.” The SBA Office of Advocacy found large businesses had received small business contracts illegally through “vendor deception.” (https://www.asbl.com/documents/05-16.pdf)  

The ASBL is concerned that Section 1341, paragraph 4 of H.R. 5297, will create a legal loophole that could allow fraudulent firms to avoid prosecution and penalties for felony contracting fraud by claiming that the contracts were awarded as a result of, “unintentional errors, technical malfunctions, and other similar situations.”  

In June, the ASBL conducted a review of the top 100 recipients of federal small business contracts for FY 2009. Within its sample, the ASBL identified 60 large firms, which received 64.5 percent of the total dollars the government claimed to have awarded to small businesses. (https://www.asbl.com/documents/ASBL_2009_dataanalysis.pdf)  

“We do not need more loopholes and protection for fraudulent contractors,” ASBL President Lloyd Chapman said in a letter to Speaker Pelosi Thursday.  “The American Small Business League (ASBL) strongly urges you to remove Section 1341, paragraph 4 from H.R. 5297 as a means of protecting the nation’s small businesses.”

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Petaluma, Calif. – A provision within President Obama’s Small Business Jobs Act, which is set to pass the House today, has small business groups across the country concerned. Section 1341, contains language that would protect large businesses that intentionally misrepresent themselves as small businesses as a means of illegally receiving federal small business contracts.

Section 1341 states that the Administrator of the Small Business Administration (SBA), “shall promulgate regulations to provide adequate protections to individuals and business concerns from liability under this subsection in cases of unintentional errors, technical malfunctions, and other similar situations.” (http://finance.senate.gov/legislation/details/?id=da799068-5056-a032-5229-92cebbd2b7a0)  

The American Small Business League (ASBL) believes that this section may provide a safety net under which large prime contractors could be absolved of fraudulent misrepresentation under the guise of, “unintentional errors, technical malfunctions, and other similar situations.”

Since 2003, there have been over a dozen federal investigations, which have found Fortune 500 firms and thousands of large companies around the world as the actual recipients of federal small business contracts. The SBA’s Inspector General has listed this problem as the number one management challenge facing the agency for the past five consecutive years and referred to this problem as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documentlibrary.html)  

Report 5-16 from the SBA Inspector General referred to these misrepresentations as, “false certifications” and “improper certifications.” Other federal investigations described the blatant fraud as “vendor deception.” (https://www.asbl.com/documents/05-16.pdf)

Concerns have been raised that this provision of the bill was included specifically to protect large firms that have misrepresented themselves as small in order to prevent them from being prosecuted under section 16(d) of the Small Business Act. Section 16(d) prescribes penalties of up to $500,000 and up to 10 years in prison for firms that misrepresent themselves as small businesses in order to illegally receive federal small business contracts.

 “This is really unbelievable. There have been over a dozen investigations showing that large businesses are committing felony contracting fraud, President Obama has promised to stop it, and now he has included a provision in the bill that will essentially legalize federal contracting fraud,” ASBL President Lloyd Chapman said. “The language in this bill will create a loophole where large firms can misrepresent themselves as small without any consequences.”