In 2003, the Government Accountability Office uncovered more than 5,300 large businesses that were receiving federal small-business contracts. An analysis of the most recent small-business data by the American Small Business League (ASBL) found that of the top 100 recipients of federal small-business contracts, 60 were actually large businesses. Those large businesses received 64.5 percent of the contract dollars awarded to the top 100 companies.

For the last seven years, the Small Business Administration has persistently argued that the diversion of billions of dollars in federal small-business contracts to many of the largest companies in the world is simply the result of "miscoding," "computer glitches" and "simple human error."

The SBA Office of Inspector General has a different explanation. In a March 2005 report, the inspector general found large businesses had received small-business contracts by making "false certifications" and "improper certifications." A similar investigation by the SBA Office of Advocacy found large businesses had received small-business contracts as a result of "vendor deception."

Visualize a federal database of suppliers with several dozen fields. One of those fields signifies whether a firm is a small business or a large business. Section 16(d) of the Small Business Act prescribes a penalty of up to 10 years in prison and/or a fine of not more than $500,000 for any firm or individual that misrepresents a business concern's status as a small business to illegally receive federal small-business contracts.

Logically, a 10-year prison term would tend to dramatically improve the accuracy of this field. Even without the threat of a 10-year prison term, the error rate on the business status field should not be any higher or lower than any of the other fields within the government's contract database.

Without any challenge from the media, or Congress, SBA has consistently maintained that the error rate on this field is thousands of times higher than any other field. More astonishing, SBA claims that when federal contracting officials and government suppliers "miscode" this field, 100 percent of the time they "miscode" the field in a way that reports small-business contracts to large businesses.

This "miscoding" dramatically misrepresents the government's compliance with the congressionally mandated 23 percent small-business contracting goal, and diverts more than $100 billion a year in small-business contracts to large businesses.

Random errors in a field with just two possible answers would follow the same pattern of flipping a coin. Half the time contracts to large businesses would be reported as small-business awards, and half the time awards to small businesses would be reported as large-business awards. Random errors would cancel each other out.

SBA's "miscoding" excuse for billions of dollars a year in federal small-business contracts flowing into the hands of corporate giants around the world as a result of random errors is statistically impossible. It is ludicrous and absurd. I find it unimaginable that Congress and the media have continued to accept SBA's obvious attempt to cover up the illegal diversion of federal small-business contracts to Fortune 1000 firms and thousands of large businesses worldwide.

Since SBA's miscoding excuse has no basis in statistical reality, what is the real reason corporate giants have continued to hijack the majority of federal small-business contracts year after year? I think one correct answer is felony federal contracting fraud, "false certifications," "improper certifications" and "vendor deception." The other answer is collusion to commit felony federal contracting fraud.

Unless you believe the SBA can flip a coin thousands of time a day, year after year and make it come up heads every time, there must be another answer. In reality, the SBA, the Pentagon, the General Services Administration and virtually every other federal agency cooperate in a governmentwide scheme to cheat America's 27 million small businesses out of the 23 percent of all federal contracts required by federal law.

Ending the diversion of federal small-business contracts to corporate giants would put more money into the middle-class economy than anything anyone has proposed.

Lloyd Chapman is president of the American Small Business League, an advocacy group based in Petaluma, Calif.

Source:  http://www.federaltimes.com/article/20101003/ADOP06/10030304/1001/PERSONNEL01

Federal officials on Friday suspended one of the nation's largest government contractors from receiving new work, alleging that the Northern Virginia company inappropriately went through other firms to gain access to contracts set aside for small companies.

The U.S. Small Business Administration's action imperils hundreds of millions of dollars in revenue for GTSI Corp., a top-50 contractor that has relied on the Pentagon and the rest of the federal government for more than 90 percent of its sales in recent years.

At issue is work GTSI did as a subcontractor for small businesses serving as the prime contractors on government contracts.

"There is evidence that GTSI's prime contractors had little to no involvement in the performance of contracts, in direct contravention of all applicable laws and regulations regarding the award of small business contracts," an SBA official wrote in a letter to GTSI's chief executive, Scott W. Friedlander. "The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors."

In an "open letter" to employees, customers, partners and investors Friday night, Friedlander said, "Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter." He said that the company looks forward "to providing you with a report on our activities as the situation warrants" and that "we appreciate your support during this time." He added: "Please be assured that we will fight to restore our good name."

The temporary suspension is one of the strongest contracting enforcement steps taken by the government in recent memory. GTSI can challenge the action, which could lead to a longer-lasting ban from government work, contracting specialists said.

"It's the first time in decades that the government has completely suspended a significant player, a legitimate top-tier contractor," said Steven Schooner, a contracting law professor at George Washington University. "It puts everybody on notice."

The move follows an internal SBA examination of GTSI activity over the past few years. It comes after a Washington Post investigation that detailed the relationship between GTSI and three small businesses, two of them entities known as Alaska native corporations.

The Post story cited an internal GTSI e-mail in which a company vice president said one of its small-business partners was "very open to the concept of GTSI doing ALL the work" on a contract. Another document cited in the story called for GTSI to receive 99.5 percent of the revenue, even though it was a subcontractor to a small business.

The SBA suspension is based in part on those documents and The Post's findings, officials said.

"The Small Business Administration has no tolerance for fraud, waste and abuse in any of our programs," said SBA Administrator Karen G. Mills in a statement. "This action is based on information the agency has compiled regarding GTSI's business practices."

Among other allegations, the SBA said that GTSI used e-mail addresses of small businesses "so that employees of GTSI could appear to be employees" of those companies while doing government work.

Behind the SBA's inquiry are long-simmering suspicions that large businesses have been able to gain access to billions in deals that were meant to provide a boost to the nation's small companies. Officials have worried that increasingly large contracts awarded in recent years through small-business programs - oftentimes without competition - are paradoxically crowding out actual small businesses from federal work.

The Pentagon and a wide array of federal agencies have used such deals because they save time and enable the agencies to meet government policy targets for small-business contracts.

GTSI was founded in 1983. Operating in Herndon, it has experienced substantial growth largely as a result of federal contracts. It reported revenue of $762 million last year from the sale of a variety of information technology products and a variety of services. The company said it had 615 employees, according to its most recent annual report.

GTSI was ranked 49th on trade magazine Washington Technology's list of Top 100 government contractors last year.

Despite its growth, GTSI has for years maintained a small-business status on some older contracts under federal rules. But the company anticipated losing direct access to set-aside deals as a consequence of its growth. Several years ago, the company disclosed a plan to "mitigate any potential adverse affect on our sales from the loss of our small business status" by developing "strategic relationships with small businesses that benefit from the small business benefits," according to a filing with the SEC.

One relationship was with EyakTek, an Alaska native corporation. EyakTek's parent, Eyak Corp., and GTSI founded the company in 2002. Eyak received 51 percent ownership, while GTSI received 37 percent. As an Alaska native corporation, EyakTek has special contracting privileges, including the right to receive contracts of any size without competition.

In 2006, EyakTek and GTSI formed another subsidiary called EG Solutions, which was among 11 companies chosen to provide equipment and services to the Department of Homeland Security through a $3 billion contracting program called First Source. GTSI also worked as a subcontractor for MultimaxArray FirstSource, another small business in the program. The department First Source's contracts are cited in the SBA notice of suspension letter.