Big Firms Winning Small Business Contracts


Big Firms Winning Small Business Contracts

By Bennett J. Loudon
Democrat & Chronicle
October 21, 2013

CarestreamHealth has annual revenues of more than $2 billion and 7,300 employees. Harris Corp. does about $800 million and hasabout 1,700 workers. And ITT Space Systemshas almost $8 billion with more than 39,000 employees.

That information, from a database of federal contracts,depicts three large enterprises, by most standards. Yet a Democrat andChronicle examination of that data also shows those companies won nearly$2.9 million in federal contracts for the Rochester area over the past fiveyears while being designated as small businesses.

Officials at those businesses had no explanation for the smallbusiness designation, but said they did not seek it.

Small Business Administrationofficials offered several possible explanations for a seemingly large companybeing classified as a small business, while not addressing any specificcontracts. But they also have acknowledged problems with several programsdesigned to help small businesses.

In Rochester and elsewhere, small businesses are the economicengines that fuel job growth and cushion job losses from larger firms. About 97percent of the 23,500 businesses in the greater Rochester area have 50 or fewerworkers, according to the U.S. Census Bureau.

"Federal contracting with small businesses remains awin-win," John Shoraka, SBA's associate administrator for government contractingand business development, wrote in a July blog post. "Small businesses getthe revenue they need to grow their revenues and create jobs. Meanwhile, thefederal government gets the chance to work with some of the most responsive,innovative and nimble companies in the U.S."

About 600 companies with Rochester addresses have been awardedabout $5.8 billion in federal contracts over the past five years, the Federal Procurement Data System (FPDS)online database shows.

That total includes about $292 million awarded to about 460vendors classified as small businesses.

Some, like T&TMaterials, a metals dealer at 1225 Ridgeway Ave., clearly qualify.

T&T has four full-time employees and annual revenue ofabout $2.5 million. Over the past five years, the company has been awardedalmost $9 million in federal contracts as a small business and about $27,000not as a small business. Most of its work is for the Defense Department.

But many of the Rochester companies doing work for the federalgovernment over the past five years with — and without — the small businessesdesignation don't fit as easily into both categories.

Harris tops the list with about $4.8 billion, a total thatincludes about $2.4 million in contracts as a small business.

ITT Space Systems was second with about $153 million incontracts, including about $53,000 in small business contracts.

The $18.4 million total for EastmanKodak Co. includes about $311,475 as a small business.

Ben Rand, a spokesman for Harris, said in an email that hiscompany submitted information to the government that "accurately reflectsour status as a large business."

ITT spokesperson Irene Lockwood wrote in an email that hercompany "does not want to comment on a government form that was completedby a contracting officer."

Carestream spokesman Robert Salmon said he was puzzled by thesmall business classification.

"It is widely known and reported that we are a $2.4billion company that operates in more than 170 countries around theworld," Salmon wrote in an email. "If our status has beenmisidentified in a government managed database, we will look into this."

James F. Mossgraber, T&T's vice president and generalmanager, said he doesn't feel his company ever unfairly lost a bid to a largecompany improperly classified as a small business, but "it certainly israther disconcerting. ... We would certainly expect everyone to play by thesame rules."

If a government agency is getting credit for a small businesscontract, "it ought to be going to a small business," said MollyBrogan Day, spokeswoman for the National SmallBusiness Association in Washington, D.C.

"We think that there are folks out there who do this onpurpose, either to bump up their contracting numbers or to get the contract,whether it's the (government) contracting officer, or the company who ismiscoding what their company should be," she said.

Judging from their local advocates, small businesses have notbeen vocal about the process.

Dan Smith, spokesman for the Rochester Business Alliance,said small business owners who are members have not raised the issue to them.He said president and CEO Sandra A. Parker "respectfully passes on aninterview on the subject."

Tim Mason, president and CEO of the Small Business Council of Rochester, anaffiliate of the SBA, wrote in an email: "I'm not at all comfortablecommenting on this topic and my members have not raised it as an issue."

How big is small?

The SBA defines a small business "as one that isindependently owned and operated, is organized for profit, and is not dominantin its field." It sets a general standard of 500 employees for mostmanufacturing and mining industries, and a maximum of $7 million in averageannual receipts for most non-manufacturing industries.

Depending on the industry, the specific definition can includecriteria based on annual sales and the number of employees. But governmentstandards put the maximum number of employees at 1,500 for manufacturers. Forservice companies, the maximum sales volume is $35.5 million.

The federal government has set a goal of awarding 23 percentof contracts to small businesses to help support small companies, butgovernment agencies usually fall short. In 2012, only 22.25percent of contracts worth $89.9 billion went to small businesses,according to the SBA. The shortfall amounts to about $2 billion in contracts.

For 2008 through 2012, an average of 21.99 percent of federalcontracts worth $93.9 billion went to firms classified as small companies.

Lloyd Chapman, founder of the AmericanSmall Business League, claims the real number is closer to 2 percent or 3percent. He said the figures released by the SBA are tainted by billions ofdollars in contracts that go to large companies, but which are counted as smallbusinesses.

"This is not miscoding, it's not simple human error, it'snot companies outgrowing their size status. It's not large companies buyingsmall businesses. It's fraud," Chapman said. The fraud, he claims is notcommitted by the companies, but by government officials.

Problems not new

According to information on the Federal Procurement Data Systemwebsite, the business size information used in the contract database comes fromthe federal government's Systemfor Award Management (SAM), a registry of federal contractors. Theinformation in SAM includes a section on "representations andcertifications" submitted by contractors regarding their status in variouscategories, such as whether they are a small business, minority owned,tax-exempt, or women owned.

But in many cases, companies that have not claimed smallbusiness status in the SAM registry nonetheless are classified as smallbusinesses in the procurement database. Harris, ITT, Ortho-Clinical Diagnosticsand Carestream — four of the five largest recipients of federal contracts inthe Rochester area — all reported that they did not qualify as smallbusinesses. (The fifth, the University of Rochester, got no small businesscontracts.)

Chapman said he analyzed the database of federal contracts for2012 and found that, of the top 100 companies receiving the highest dollaramount in federal small business contracts, 71 were large companies thatsignificantly exceeded the SBA's small business size standards. He said thosecompanies got about $9.5 billion in contracts.

In a spring reportto Congress, SBA acknowledged "procurement flaws that allow largefirms to obtain small business awards."

In an emailed statement, the SBA's Shoraka said the agency"has no tolerance for waste, fraud or abuse in any small businesscontracting program."

SBA officials listed several possible reasons why a largecompany may be labeled as a small business. A company may have fit the sizecriteria when a contract was originally awarded, but subsequently grew beyondthe limits.

Some companies that seem very large may actually qualify as asmall business within a narrow industry sector.

If a small company is acquired by another firm and is nolonger considered small, it is the responsibility of the firm to notify thegovernment within 30 days to update its status. An error would occur if thecompany failed to notify the government.

"Human error may occur when a contracting officer inputsprocurement data ... indicating that a firm is small when indeed it isnot," SBA officials wrote in an email.

About 5 million annual contract actions are handled by more than30,000 federal workers, SBA officials said. If an error was made, SBA officialssaid information cannot be changed after it is entered in the procurementdatabase.

For several years, the SBA's Office of InspectorGeneral has reported problems with small business contracts going to largefirms.

During testimony to a congressional committee in April, SBA Inspector GeneralPeggyE. Gustafson said: "Oversight of the government contracting andbusiness development programs, including investigating allegations thatineligible companies are fraudulently benefiting from these programs, remains akey priority."

Gustafson said that as of Sept. 30, 2012, her agency wasinvestigating 62 government contracting cases worth more than $1.5 billion.

She also said in her testimony that, during the past year,there was a significant increase in the number of lawsuits filed alleging fraudin SBA government contracting programs.

"The OIG will continue to assess whether the SBA istaking adequate steps to ensure the integrity of small business contracting,with an emphasis on issues such as the accuracy of reporting small businesscontract activity, large businesses being classified as small businesses,adherence to regulations to protect small businesses, training of governmentcontracting personnel, deterring fraudulent acquisition of governmentcontracts, and bundling of contracts," Gustafson said.

Seeking solutions

Congress has taken action on the problem, according to U.S.Rep. Chris Collins, R-Clarence, a member of the House Small Business Committee.In an emailed statement, Collins said: "We continue to look at this issueand advance legislative fixes to ensure that large corporations are not beingunfairly awarded federal contacts meant to support America's small businesseconomy."

The Small Business Committee developed a contracting reforminitiative that was signed into law in January as part of the National DefenseAuthorization Act of 2013.

The legislation will enforce existing small businesscontracting goals by making them part of the annual reviews and bonusdiscussion for senior agency employees. It will make it easier to suspendcompanies intentionally defrauding the government. And the law requires the SBAto develop size standards that more accurately define a small business.

"I'm not suggesting that what the small businesscommittee did solved the problem entirely, but it acknowledges that the problemexists and they put parameters in place that would hopefully take steps to curbthe problem," said Grant Loomis, a spokesman for Collins.

Only Corporate Giants Want The Small Business Administration Closed

Press Release

Only Corporate Giants Want The Small Business Administration Closed

October 18, 2013

In 1985 President Ronald Reagan recorded a glowing TV spot on the great work at the Small Business Administration (SBA) and then did a complete 180 and pushed hard to permanently close the agency. Reagan's budget director David Stockman sparred with members of Congress insisting the SBA be closed.

The SBA is one of the smallest agencies in our government and yet for almost 30 years, some of the most powerful forces in the country have unrelentingly pushed for its closure.

When George W. Bush was elected president he made the task of closing the SBA by the end of his first term one of the top priorities of his administration. During his administration, the SBA budget was cut by almost 50 percent and the core of the agency was laid off. The SBA layoffs were specifically targeted at SBA staffers that were involved in contracting programs.

There have been dozens of federal investigations and investigative reports by the media documenting the systematic diversion of federal small business contracts to many of the largest corporate giants in the world, including Fortune 500 firms.

When Obama was running for president, he acknowledged the magnitude of the fraud and abuse at the SBA and released the statement on his campaign website, "It is time to end the diversion of federal small business contracts to corporate giants."

Despite President Obama's campaign promise to end the diversion of billions of dollars a month in federal small business contracts to corporate giants, the rampant fraud and abuse in federal small business contracting programs has only gotten worse.

Information the SBA was forced to release to the American Small Business League in September showed 235 Fortune 500 firms had received federal small business contracts last year.

In November of 2008, I predicted President Obama would resurrect Ronald Reagan's plan to permanently close the SBA by combining it with the Department of Commerce. He proved me right in January of 2012 when he announced his plan to do exactly that.

Reagan called combining the SBA and the Department of Commerce, "closing the SBA." President Obama learned "closing the SBA" is extremely unpopular with Congress and the public. He renamed Reagan's plan from "closing the SBA" by combining it with the Department of Commerce to "streamlining government" and "combining agencies." Not one journalist in America has reported on President Obama's plan to permanently close the only tiny agency in government to assist the 28 million small businesses that are responsible for over 90 percent of net new jobs in America.

Federal law requires a minimum 23 percent of the total value of all federal contracts be awarded to small businesses. That's over $100 billion a year. Big greedy, corrupt and all-powerful government defense contractors wanted that money. They lobbied and bribed Congress and government officials into passing illegal policies that have allowed every federal agency in Washington to count billions of dollars in contracts to Fortune 500 firms as small business contracts.

The supposed random anomalies, errors and miscoding always divert federal small business contracts to Fortune 500 firms and artificially inflate the actual dollar volume and percentage of federal contracts actually awarded to legitimate small businesses, but never the other way around.

So, here is the real reason President Obama wants to close the SBA. The excuses that Fortune 500 firms are the actual recipients of most federal small business contracts as a result of anomalies and miscoding has run its course. It's worked for over a decade. Not one journalist in 10 years has ever asked any government official why these random anomalies always divert federal contracts away from legitimate small businesses and into the hands of the largest and most powerful corporate giants in America.

For the latest video from the ASBL, click here.

An Open Letter to Arianna Huffington from American Small Business League President Lloyd Chapman

Press Release

An Open Letter to Arianna Huffington from American Small Business League President Lloyd Chapman

October 15, 2013

On Friday I received an email from Stuart Whatley at the Huffington Post, with no explanation to notify me they would no longer be posting my blogs. I'm communicating with you this way because all other efforts to communicate with your team at the Huffington Post have failed.

I don't know if you remember me, but a few years ago you and I posted almost identical blogs on the same day criticizing President Obama. I don't remember if my office called yours or yours called mine but a line of communication was established.

A few years ago, on the day before Thanksgiving, you and I talked on the phone. It sounded like you were in your kitchen and I could hear the sounds of children in the background.

We talked about my campaign to stop the federal government from giving small business contracts to Fortune 500 firms. You told me you agreed it was unacceptable that the government was giving billions of dollars in small business contracts to Fortune 500 firms, year after year. We both agreed on the importance of small businesses to the national economy. You told me you would do all you could to help me.

A few months ago, I started to notice a difference in how my blogs were handled. My blogs used to post in a matter of minutes and would be posted prominently on the site. One of my blogs received over 3,500 comments. In the last few months, it has taken up to five days for my blogs to post. My most recent blog took almost three days to post.

Friends and supporters tell me that when they try to comment on my blogs, their comments don't post. My responses to other blogs and my responses to comments on my own blogs often don't post.

There are two issues that I fight for. I don't think Fortune 500 firms should be allowed to receive federal small business contracts and I don't think President Obama should be allowed to resurrect Ronald Reagan's plan to permanently close the Small Business Administration (SBA) by combining it with the Department of Commerce.

To me, turning the SBA over to the Department of Commerce would be like turning control of the NAACP over to the KKK.

What percentage of Huffington Post viewers and the American people would agree with you and I that Fortune 500 firms should not be allowed to hijack hundreds of billions of dollars in federal small business contracts for over a decade? I'm guessing close to 100 percent.

In 2008, Obama released the statement, "It is time to end the diversion of federal small business contracts to corporate giants." I guess that proves I'm not a conspiracy nut.

Last year, the SBA's own data showed 235 Fortune 500 firms received billions of dollars in federal small business contracts. I have now won over 30 legal battles with the federal government forcing the release of data proving some of the largest corporate giants in the world are the real recipients of government small business contracts. I think that's more proof that I'm not the conspiracy nut the government would have the media believe.

I also have a bill in Congress I wrote, H.R. 1622, The Fairness and Transparency in Contracting Act that will end the diversion of federal small business contracts to corporate giants.

I have appeared in dozens of national television news programs and hundreds of radio shows discussing the issues affecting small businesses in America. I was very flattered when Entrepreneur magazine compared me to a "Modern day Cesar Chavez."

Several federal investigations and media reports I have worked on with ABC, CBS, NBC and CNN have uncovered rampant fraud and the diversion of federal small business contracts to corporate giants. The Huffington Post has been a valuable asset in keeping the public informed of the various federal investigations that have found fraud and abuse in Federal programs to assist American small businesses.

The SBA's own Inspector's General have named the diversion of federal small business contracts to large businesses as the number one problem at the SBA for nine consecutive years.

I have the utmost respect for you. My blogs on the Huffington Post have given me a voice in America that I would have never had and helped me to bring about significant changes in federal policies that have benefited millions of small business across the country.

The first amendment of the Constitution guarantees all Americans freedom of speech but you were the person that allowed us to actually be heard across the nation.

I sincerely hope you still feel the same way you did that day you talked to me from your kitchen. I hope you will still help me to keep fighting for the 28 million small businesses that create over 90 percent of the net new jobs in America, over 50 percent of the private sector work force and over 50 percent of the GDP.

I will appreciate anything you can do to see my Huffington Post account is reinstated.


Struggle Continues to Reform the Small Business Administration


Struggle Continues to Reform the Small Business Administration

By David Kiger
Business 2 Community
October 12, 2013

Funding is a particular impediment for small businesses, especially those  owned by socially and economically disadvantaged entrepreneurs. In 1953,  Congress created the Small Business Administration to mitigate the problem, but  fraud and inflated reporting practices have plagued the agency for years.

Instead of providing a mandated minimum 23 percent of loans to certified  small businesses, the SBA has been reporting numbers just shy of the goal –  21.65 percent in 2011 and 22.25 percent in 2012.

Audits, however, have found the figures actually are inflated slightly. In  fact, a report from the American Small Business League showed that 57 percent of  loans reserved for small businesses actually went to Fortune 100 companies such  as General Electric, Apple and Citigroup.

In 2012, nearly $500 million in loans that had been set aside for small  businesses went to those large companies instead.

Causes for the SBA’s Problems

There are several reasons the money is missing its intended target. One is  human error.

The SBA is required by Congress to reserve contracts between $3,000 and  $150,000 for small businesses that offer a product or service at a fair market  price. Employees in charge of administering the loans don’t always do the  appropriate research to find competitive loan qualifiers. Instead, larger  companies fill the void by default. In 2012, only 68 percent of these reserved  loans went to small businesses.

Another issue is deception – large companies that masquerade as small ones,  usually through shell companies or subsidiaries. Oh, it’s not always deception.  Sometimes, a large company acquires a small business while it is still receiving  SBA funding. Either way, genuine small businesses lose out on funding.

Misreporting at the SBA is another major contributing factor regularly  identified by SBA Inspector General Peg Gustafson. The agency invested in  computers used to analyze data for anomalies and flag errors in reporting. That  includes looking for missing information and names linked to Fortune 100  companies. If an application is flagged, the agency is required to review the  information and make the appropriate corrections.

What to Do Next?

The continuing problems have prompted President Obama to suggest  consolidating the SBA with the Department of Commerce, an agency devoted to  large corporations. The president says this will save $300 million annually –  mostly because it will effectively shut down the SBA.

Supporters of SBA hate that idea because, they say, small businesses would  lose the only agency dedicated to helping them get established.

Instead, the supporters say, the president should focus on finding a way to  more effectively monitor SBA loans to ensure certified small businesses are  receiving at least 23 percent of the agency’s loans.

It’s worth finding a way to make the SBA work. After all, small businesses  provide 90 percent of new, net jobs and 50 percent of private sector employment.  Small business owners deserve the nation’s support.