The chairmanof the House Small Business Committee warned the Small Business Administrationthat its proposal to change rules governingsmall IT reseller contractors will likely land the agency in court.

The proposedchanges, announced by the SBA inAugust, would take away an exemption for Information Technology Value AddedResellers (ITVAR) under North American Industry Classification System rule541519. Under the proposed change, IT businesses with annual sales of more than$27.5 million would be considered large, and thus ineligible for small businesspreferences.

In a 12-pageletter sent to the SBA on Nov. 10, Rep. Sam Graves (R-Mo.) said the agency'sreasoning for the changes ignores fundamental differences in how the federalgovernment treats IT purchasing. IT, he wrote, "is the only category ofgoods and services to have its own regulatory framework for purchases -- theTechFAR -- since the purchases of technology involves commercial itemprocurements, commercial services procurements, noncommercial procurements,procurements involving sensitive and classified information, data rights issuesand numerous other legislative and regulatory anomalies."

Graves urgedSBA to withdraw the proposed rules, and wrote that it "is legallyinsufficient and subjects the SBA to substantial litigation risk." Gravesalso warned that Congress would consider "appropriate legislative action"if the SBA went ahead with the rulemaking.

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A Small Business Administration's bid to modernize its classifications ofcompanies eligible for contracts and loans has drawn venom from a powerfulHouse committee chairman and some in the information technology industry.

A proposed rule to revise employee-based size standards is "arbitraryand capricious" and "irrational," Rep. Sam Graves, R-Mo., chairman of the SmallBusiness Committee, said in a Nov.10 letter to SBA. The draftrule also "disregarded the express language" of the 2013 National DefenseAuthorization Act requiring SBA to publicly document its reasoning for changingclassifications, added Graves, who warned of litigation and a legislative fix.

Critics worry that too many IT companies wouldbe dealt out of SBA's programs.

In September, the SBA published in the Federal Register aproposal to change national industry classifications, as part of itsfour-year-old review of size standards under the 2010 Small Business Jobs Act.The proposed process would base classification of companies more on annualrevenues more than number of employees. The comment period ended Monday.

Together with other changes, the new rule would define as small businessesthose IT firms with $27.5 million or less in annual sales, making nearly 1,650more firms eligible for federal procurement and SBA's loan programs, accordingto the agency.

Among other changes, the proposal would no longer allow some computerservices firms with 150 employees or fewer to qualify for a separatesub-category for Information Technology Value Added Resellers.

"For size standards review, SBA takes into account the structuralcharacteristics of individual industries, including average firm size, startupcost and entry barriers, the degree of competition, and small business share offederal government contracting dollars," SBA said in the proposed rule. "Thisensures that small business size definitions reflect current economicconditions and federal marketplace in those industries."

The Petaluma, Calif.-based American Small Business League has longcriticized SBA's methods, saying they allow large companies to masqueradeas small businesses to win contracts.

"If the new SBA policy were adopted, small businesses that provide a widerange of information technology products would lose their small businessstatus and be forced out of the federal marketplace," said league founder LloydChapman. "At the same time thousands of small businesses in the IT industrywill be reclassified as large businesses, the SBA will continueto report billions of dollars in awards to Fortune 500 firms andtheir subsidiaries as small business contracts."

The league estimates 12,000 companies would adversely affected by theproposed rule, and it plans to file an injunction.

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It is difficult to encourage potentialaccomplishments with the American Government when data from previous years showscandals, corruption and false data. With a long history of pay-offs andunder-the-table spending, the American Small Business Act was created in 1953to help small businesses win contracting dollars. A great cause with a flawedpurpose. The businesses included in the small business act include: woman-ownedbusinesses, service disabled veteran-owned businesses, social and economicallydisadvantaged businesses (8a Program), HUBZone certified business and more.Considering over 80% of the American workforce is made up of small businessemployees, the Small Business Act was created to make sure federal procurementofficers spent 23% of their contracting budget to registered small businessesthat meet this criteria.

Now it sounds all fine and dandy. But here is wherecorruption sets in.

In an article by the Federal Times entitled "StreakBroken: Government Finally Meets Small-Business Goal," the government suggeststhat for the first time in eight years the government has accomplished theirsmall business spending goals of 23%. 23% is specially set-aside in everyprocurement/contracting officer's budget that will solely be awarded toeconomically disadvantaged businesses, woman owned businesses, service-disabledowned businesses and HUBZone owned businesses. All of these categories are collectivelyconsidered small businesses set-asides according to the Small Business Act setforth by Congress.

According to the article, despitefailing to hit the woman owned and HUBZone set-aside goals, (which technicallymeans they didn't meet their goal), the government some how was able to hittheir goal at 23.4% in 2013. The government even felt so good about their workthat they gave themselves an 'A' letter grade, stating it was "an improvementover the last four years of 'B' grades." Even last year in 2012, when thegovernment claimed that 22.25% went directly to small businesses, their datastill showed showed to be incorrect according to the Federal Procurement DataSystem (FPDS). The man that discovered these figures was Lloyd Chapman.

Lloyd Chapman, President of the American SmallBusiness League claims that he has been uncovering fraud at the SBA since 2002.Chapman even testified before Congress during a GAO testimony over smallbusiness contracts being awarded to corporations. Chapman even explained to mein a phone conversation when I was reporting for GovernmentContractingTips.comthat, "Federal law states that 23% of all government contracting dollars mustbe given to registered small business government contractors according to theSmall Business Act. The most recent data from the Federal Procurement DataSystem (FPDS) show that the federal government spent around $1.1 trillion onunclassified contracts. That means that small businesses should be receivingaround $253 billion. The SBA stated that $89.9 billion went to small businessesin 2012, which is 22.25 percent. Well that is just not true. When you look atFPDS, not what Lloyd Chapman (referring to oneself) says, it shows that some ofthe companies that received small business contracts were Fortune 500companies. Sears, Honeywell, IBM, HP, General Dynamics and Coke to name a fewdirectly out of FPDS. So when you look at the SBA's $89.8, of the top 100recipients of small business government contracts today 72% are currently largebusinesses. A small business must be independently owned, and not publiclytraded; not be dominate in their field, and have no NAICS codes with a maximumemployee standard more than 1,500."

All I have to say is that there must be a reason whythe SBA has had 3 different Small Business Administrators in the past year and 3 months. You do the math, the system is brokenand no one can fix it.

Although the data is for 2013, the results areanticipated to be a very similar outcome in contracting spending in 2014 . Hereis a link to the 2013 Small Business Goaling Report:

https://www.fpds.gov/downloads/top_requests/FPDSNG_SB_Goaling_FY_2013.pdf

Shortly before the brand new small business goalnumbers were released another story emerged which showed undocumented pastperformance contracting dollars. The Government Accountability Officediscovered over $600 billion worth of federal spending thatwas completely undocumented from the 2012 year on USASpending.gov,a website that is shows current federal spending in the United States. Makingmost previously released data inconclusive. Seriously!!!! I mean this is when Istarted to really put the dots together.

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