Last week, President Obama signed into law measures aimed at providing billions of dollars in tax breaks and lending for small businesses. The American Small Business League does not believe these measures adequately address the needs of America's small businesses. The ASBL maintains that the best way to stimulate the economy is to put money directly into the hands of small businesses. This would be tremendously more effective than tax breaks or increased lending, and it could be done in a deficit-neutral way.

Congress realized small businesses were the engine of economic growth in America when it passed one of the most successful economic stimulus plans in U.S. history, the Small Business Act, in 1953. Today, this cornerstone legislation requires that a minimum of 23 percent of all federal contracts be awarded to small businesses.

The U.S. government is grossly missing its goal. The government says it awarded 21.89 percent of its contracts to small businesses last year. But the ASBL has estimated that every year more than $100 billion in small business contracts flow into the hands of large businesses, which translates to less than 5 percent of government purchases actually going to small businesses. Since 2003, a series of federal investigations has found that billions of dollars a year in federal small business contracts have actually wound up in the hands of corporate giants around the world. The Small Business Administration (SBA) Office of Inspector General in a report referred to this issue as "One of the most important challenges facing the Small Business Administration and the entire Federal government today."

As opposed to fighting a long legislative battle in Congress, as he did over the new legislation, Obama should issue an executive order or adopt policies at the SBA that would ensure full government compliance with the mandated 23 percent small business goal.

Awarding more government contracts to small businesses is important given their central role in generating jobs.

According to the U.S. Census Bureau, small businesses create more than 90 percent of net new jobs.

America's 27 million small businesses employ more than 50 percent of the private sector workforce, generate more than 50 percent of the gross domestic product and are responsible for more than 90 percent of all U.S. exports and innovations.

Pevco, a Baltimore-based small business, has experienced the problem first hand. Chairman Fred Valerino Sr. filed protests with the SBA when he began to lose federal small business contracts to a Swiss multinational.

"The SBA claims TransLogic Corporation [the Swiss corporation] received 147 small business contracts over a six-year period accidentally. It is simply not believable," Valerino said. "It is time for President Obama to end this abuse."

In February 2008, during the presidential campaign, Obama stated, "It is time to end the diversion of federal small business contracts to corporate giants."

Obama needs to keep that promise. Ending this abuse would send billions of dollars in existing government spending to small businesses year after year, slash unemployment and help to prevent a double-dip recession.

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

Source:  http://www.washingtonpost.com/wp-dyn/content/article/2010/10/01/AR2010100106555.html

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.

BOSTON (TheStreet) -- Don't count Lloyd Chapman of the American Small Business League among those applauding the Small Business Jobs and Credit Act of 2010.

"What Obama calls a jobs bill is two things. It is tax cuts and lending," he says. "Every study I've seen shows that small businesses don't need loans right now, they need an increase in demand for their goods and services."

Undercutting that demand, he says, is the longstanding -- and very likely worsening -- problem of government contracts being awarded to large corporations, some foreign-based but with domestic locations.

Among the recipients he and others cite as gaining from government work intended for smaller shops are General Dynamics(GD), Xerox(XRX), Boeing(BA), Lockheed Martin(LMT), British Aerospace, Dell Computer(DELL), Rolls Royce, Raytheon(RTN), French firm Thales Communications and Ssangyong, which is based in Seoul, South Korea.

For example, Textron(TXT), a Fortune 500 firm, got more than $775 million in federal small-business contracts in a single year, 2008. That contract was awarded to AAI, a subsidiary that itself has more than 40,000 employees and annual revenues of more than $11.6 billion.

The problem is hardly a new one and critics -- elected officials and private citizens -- have hammered away at it for the better part of the past decade. Since 2003, more than a dozen federal investigations have found cases where large corporations from around the world were recipients of billions of dollars in federal small-business contracts.

In 2006, a Congressional report by the House Small Business Committee called miscoding, errors in vendor applications that misidentify a firm's size, as "an escalating problem."

"In 2004, the Small Business Administration's own Office of Advocacy released a report showing that $2 billion had been miscoded as small-business contracts, when, in reality, these contracts had been awarded to large firms, nonprofits and state and local government agencies in FY 2003," it reads. "In the latest data, there were six times the amount of miscoding that was documented in 2004 ... with nearly $12 billion in miscoding."

That report called the Department of Defense one of the "worst offenders."

"While DoD dominates the federal marketplace, representing 69 percent of it, the agency also accounted for nearly three-fourths of the total miscoding found -- $8.3 billion dollars," it read. The Department of Treasury miscoded 40% of small-business contracts. The Department of Transportation followed with 25%.

That investigation found such examples as Microsoft(MSFT) earning $1.5 million in small-business contracts. Rolls-Royce got $2.2 million in contracts, most from the U.S. Navy. Google(GOOG), ExxonMobile(XOM) and Wal-Mart(WMT) all profited, despite their size. In 2008, an investigation by the inspector general for the Department of the Interior found that intended contracts for small business were still going to such Fortune 500 companies as Xerox, Sherwin Williams(SHW) and John Deere(DE).

Some may be mistakes, but government-drafted reports have called others "false certifications" and "vendor deception." Miscoding, critics say, is far too common to dismiss as incidental or accidental.

Paperwork has shown data given for the number of employees as sometimes being for just a particular unit, division or subsidiary, as opposed to the entire company. Companies may also be awarded small-business contracts before they expanded beyond the category or were acquired by a larger parent. In more egregious cases, no immediate "excuse" can be found other than lackadaisical oversight or vendor malfeasance.

Though Chapman doesn't think their efforts go far enough, officials in Washington have at least taken initial steps to bring small contract awards back in line. A recently launched Small Business Dashboard tracks contracts awarded to small businesses and tallies how close to spending "goals" those departments hew.

For example, the Department of Defense spends 18.83% of its current budget through small-business contracts ($35.5 billion), falling 3.45% short of its targeted goal. The Department of Housing and Urban Development has a 57% target, but only spends 28.4% ($15 million) of its budget through small businesses. Other government agencies, such as Veterans' Affairs, the Department of Agriculture and the Social Security Administration, exceed their goals.

Government officials say they take the matter seriously.

On Sept. 15, Karen Mills, administrator of the Small Business Administration, wrote on the White House blog about the Task Force on Federal Contracting Opportunities for Small Businesses that was formed in April.

"The federal government is the largest purchaser of goods and services in the world," she said. "Of those purchases, small businesses get nearly $100 billion each year, so these programs are very powerful, particularly for small firms owned by women, veterans, minorities and economically disadvantaged individuals. Overall, our goal is to make sure that 23 percent of contracts or more go to small business. When we come up short by just 1%, as we did in Fiscal Year 2009, about $5 billion less goes to small businesses. We can do better."

To that end, the task force has made a variety of recommendations intended to streamline the procurement of government contracts by small businesses and announced new online tools such as the dashboard.

Chapman was an outspoken critic of the Bush administration over the issue and went on to endorse the candidacy of Barack Obama for his stated goal of improving transparency regarding government contracts for small businesses.

But as he sees it, little has changed since the election.

Poring over federal contract databases and suing to get data (including a current lawsuit against NASA) when his efforts are blocked, Chapman says the big guys are still snatching business away from the small guys.

The new Small Business Act may actually make it easier to get away with fraudulent contracts, he says. It contains a provision that could protect large businesses intentionally misrepresenting themselves as small. It may provide a safety net under which large prime contractors could be absolved of fraudulent misrepresentation under the guise of new liability protections for "unintentional errors, technical malfunctions and other similar situations."

Chapman worries that language could undermine existing, though perhaps not much-enforced, penalties of up to $500,000 and up to 10 years in prison for firms that misrepresent themselves to win government contracts.

In the meantime, proud of his status as a litigious gadfly, Chapman says he will continue to scrutinize contracts and demand a fair shake for the nation's small businesses.

"What's the most powerful small-business program that exists in America today," he asks rhetorically. "It is the small-business act of 1953. It says a minimum of 23% of all government contracts have to go to small businesses. That would be great, because that would be about $230 billion dollars a year. But nothing has happened. Ending the diversion of small-business contracts to large businesses would put more money into the hands of small businesses, which is where most Americans work and jobs are created. It would do more than anything President Obama or anyone else in Washington has ever spoken of."

Source:  http://www.thestreet.com/print/story/10874065.html