A Petaluma advocacy group filed suit Wednesday against the U.S. Small Business Administration, alleging the agency is withholding data that show contracts meant for small companies are going to big corporations instead.

The group contends the federal government gives more than $60 billion a year in small-business contracts to large corporations, including Wal-Mart, Microsoft, Lockheed Martin, Boeing, Halliburton, Bechtel, Hewlett-Packard and L-3 Communications.

Federal law requires the government to spend 23 percent of the value of its contracts with small companies, according to the American Small Business League, a Petaluma group that has long criticized the SBA's compliance with contracting policies.

The SBA is refusing to release the names of the firms it reported as small businesses for the purpose of meeting federal procurement targets, said Lloyd Chapman, the league's president.

An SBA spokesman on Wednesday declined to comment on the lawsuit, but said the names of companies receiving U.S. small-business contracts are readily available on government Web sites.

"We don't know anything about this lawsuit," said Mike Stamler, an SBA spokesman in Washington. "We haven't seen it yet."

The lawsuit was filed in U.S. District Court in San Francisco under the federal Freedom of Information Act. It is the fourth lawsuit filed by the Petaluma group seeking information from the SBA.

In a report last year, the SBA said it is taking steps to keep large companies from getting government contracts set aside for small business. The report said some large corporations got them when they acquired small companies that had existing federal contracts.

In addition, some small businesses with federal contracts have grown so large they no longer meet the criteria, the SBA said.

The agency said there are "very few" cases of large corporations getting federal contracts meant for small business.

But the Petaluma group said the SBA has made it impossible for the public to determine whether a company is small or large and has delayed action to stop the misuse of small-business contracts.

The lawsuit asks for a court order forcing the SBA to turn over its list of companies that received $78 billion in contracts meant for small business in 2006.

"I want people to know that when the government diverts contracts from middle-class America, there is a staggering negative economic impact," Chapman said.

"I don't think there's any question that the Bush administration's anti-small business policies have been a contributing factor to our nation's current economic woes," he said.

You can reach Staff Writer Steve Hart at 521-5205 or steve.hart@pressdemocrat.com.

Source: http://www1.pressdemocrat.com/article/20080207/NEWS/802070339/1036/BUSINESS01

July 11, 2003

WASHINGTON -- They are among America's larger companies: Verizon Communications, AT&T Wireless, Barnes & Noble booksellers and Dole Food Co. But in the government's contractor database they are listed as small businesses.

The mistaken designations, contained in records obtained by The Associated Press, mean the government has overstated the contract dollars that are going to small business at a time when the Bush administration has been pressing to give smaller firms as much federal work as possible.

"The numbers are inflated, we just don't know the extent," said David Drabkin, senior procurement officer for the General Services Administration.

Drabkin, whose agency maintains the records entered by contracting officials across the government, said the GSA is working to ensure accurate entries in the future but past errors are "not something we can clean up overnight."

Once a company's status is mischaracterized, it stays that way through the life of a contract -- which can be 20 years. That means smaller firms that the administration intended to help may be frozen out from fresh business by the bigger companies with the incorrect designations.

"This transition has led to the apparent diversion of contract dollars intended for small business," said Sue Hensley, a spokeswoman for the U.S. Small Business Administration.

One small businessman who is pushing to have the listings corrected says workers are paying in lost jobs.

"Most Americans work for small businesses and most of all the new jobs are created by small businesses. This certainly has a dramatic impact on job creation," said Lloyd Chapman, who formed the California-based Microcomputer Industry Suppliers Association.

The government defines a small business as one that is independently owned and operated and is not dominant in its field. Size standards change from one industry to another, based on either the number of employees or revenues.

Among the contractors designated as small businesses in the records obtained by the AP were:

™ Verizon, the largest local phone company in the nation, and Verizon Wireless, the company's joint venture that is the largest U.S. wireless provider.

™ Barnes & Noble, the top U.S. bookseller, with superstores in 49 states and the District of Columbia, plus mall stores under different names.

™ AT&T Wireless, the cellular phone spinoff from AT&T.

™ Starwood Hotels & Resorts Worldwide, which includes Sheraton, St. Regis and Westin hotels.

™ Dole Food Co. Inc., the world's largest producer of fresh fruits and vegetables.

™ KBR, a Halliburton subsidiary formerly known as Kellogg, Brown & Root. KBR is one of the world's largest providers of oil field services and part of the company Vice President Dick Cheney ran before taking office in 2001.

The Bush administration has set a goal of providing small business with 23 percent of all federal contracts, but has fallen about 3 percentage points short after awarding $53 billion to small companies.

Responding to pleas from a Marin trade group, U.S. Sens. Barbara Boxer, D-Calif., and John Kerry, D-Mass., said they want action against large corporations that disguise their size in order to qualify for billions of dollars in federal contracts earmarked for small business.

"Politicians love to say they want to help small businesses," said Kerry, chairman of the Senate's small business committee. "But how can any politician make that claim with a straight face when contracts that should be going to these hard-working small businesses are being turned into giveaways to large multinational companies?"

Kerry, widely believed to be a contender for the Democratic presidential nomination in 2004, said the practice was "an insult to common sense and fundamental economics and it needs to end."

Boxer, in a letter to Steve Bunnell at the fraud division of the U.S. Attorney's office in Washington, asked for a review of the alleged misrepresentations.

"With small businesses in California facing a difficult business environment, it is important that government contracts set aside for small businesses be made available to small businesses," Boxer said.

The senators were responding to information assembled by Lloyd Chapman, president of the Microcomputer Industry Suppliers Association, a trade group formed in August. Chapman is general manager of Novato's GC Micro Corp., a 30-employee computer reseller in Bel Marin Keys.

The company, founded in 1986, does about $35 million annually in sales of computer hardware and software, particularly to the government and to government contractors.

"We were losing bids to some companies and I thought, 'There's no way that's a small business,' " Chapman said. He said he believes deception has helped erode the Marin and California economy and led to countless small business bankruptcies or shutdowns.

"There seems to be a correlation between the level of fraud in the small business programs and the downturn in the economy," he said.

Elissa Giambastiani, chief executive of the San Rafael Chamber of Commerce, said small firms make up the majority of the Marin business community. Of nearly 12,000 Marin businesses reported by the state Employment Development Department in 1999, almost 10,000 firms had 10 or fewer employees, Giambastiani said.

David Gray, a spokesman for the Inspector General's office of the federal Small Business Administration, said Wednesday his department was "looking into" the SBA's contracting process, but that it was not a formal investigation. The U.S. General Accounting Office also is reviewing the issue, according to Chapman.

At least one company that had been on the SBA's electronic list of eligible small businesses - GovConnection Inc. of Rockville, Md. - was removed earlier this month, according to a check of the database, called Pro-Net (www.pro-net.sba.gov).

GovConnection had been listed as a small business with 50 employees - well below the SBA definition of a small business as 500 or fewer employees. But GovConnection is a wholly owned subsidiary of PC Connection Inc. of Merrimack, N.H., which has more than 1,300 employees and $1.18 billion in 2001 sales.

In July 2001, the SBA wrote to PC Connection to inform the company that it and GovConnection were too large to be included in Pro-Net. However, until about two weeks ago, GovConnection was still on the Web site.
Chapman's firm lost a $50,000 bid to GovConnection in September.

"The SBA sent a letter to GovConnection on July 12, 2001," Chapman said. "Why is GC Micro losing bids to them in September 2002? Why did the SBA keep the company on the Web site 18 months after that letter? That's a pattern."

Gary Jackson, the SBA's assistant administrator for size and standards, said the agency was "looking into" the issue.

"I can't comment specifically on any actions, but I can tell you that if you did go on Pro Net, GovConnection is no longer on there," Jackson said. "We are aware there are questions," he added. "And we do have procedures to address those questions."

Chapman has stacks of printouts of similar examples in his office. Some companies listed on Pro Net are also identified elsewhere on Web sites of multi-billion-dollar Dutch, German and Swiss conglomerates as their subsidiaries.

"I think that's appalling," Chapman said. "I thought the SBA was supposed to help small businesses, but it appears that their primary mission is to help federal agencies hit their small business goals."

Attorney Karen D. Powell of the Washington D.C. law firm Petrillo and Powell said she believed the large corporations are not acting fraudulently, but are taking advantage of loopholes in the procurement process.

One major loophole under scrutiny, she said, is that some contracts have indefinite terms and can continue for 20 or more years. Even if the firm starts out as a small business when it gets the contract and then grows very large, it is still kept on the list, she said.

Federal agencies, who are under pressure to give at least 23 percent of their contracts to small businesses, find it easier to simply award the contracts to the firms who already have procurement orders in place.

"That's the real scandal," said Powell, who represents numerous small businesses and companies holding federal contracts. "Agencies are using awards to these contracts to count against their quotas."

The government is planning to close that loophole next year by limiting the terms of such contracts to five years, she added.

According to Powell's research, $42.7 billion in federal government contracts was awarded to small businesses in 2001 - about 20 percent of the total federal contracts assigned. SBA statistics list total awards at $219.6 billion for 2001.

Chapman insists that the issue is more serious than a loophole because of its devastating effect on the health of the economy, which needs small businesses to survive.

"This is not a loophole," he said. "These cases are intentional federal contracting fraud and should be properly investigated and prosecuted."

Contact Keri Brenner via e-mail at kbrenner@marinij.com

By NEIL GORDON

In an ongoing effort to document the extent to which large businesses are winning federal small business contracts, the American Small Business League (ASBL) has filed another lawsuit to force the government to turn over contracting data.

This time, ASBL is seeking an injunction to compel the Department of Defense (DoD) to respond to its March 2010 Freedom of Information Act (FOIA) request for small business subcontracting reports on federal contracts with Hewlett-Packard. DoD denied the request on the ground that the reports, which are submitted to measure compliance with the Small Business Act, contain trade secrets and other sensitive financial details.

“I am confident that the documents we requested will further prove that corporate giants are receiving billions a month in federal small business contracts—and the fact that we must take the Pentagon to court should be an indication of how damaging the information is,” ASBL president and founder Lloyd Chapman told Federal Computer Week in regard to the lawsuit.

Under the Small Business Act, anyone who misrepresents the status of their company as a small business in order to obtain a federal contract or subcontract may be subject to fines up to $500,000, imprisonment up to ten years, and suspension or debarment from federal contracting, although proving the intent necessary to impose punishment is often very difficult. However, as the Small Business Administration Inspector General reported last year, most instances of large companies obtaining small business contracts are actually the result of “errors made by government contracting personnel, including misapplication of small business contracting rules.”

ASBL has filed numerous FOIA lawsuits against the federal agencies and has won many of them. ASBL’s willingness to fight the government in court has been a boon for federal contracting transparency, exposing to the world the billions of dollars in federal small business contracts that have been diverted to some of the world’s largest companies. Last week, POGO joined an ASBL-led coalition demanding more accurate reporting of the proportion of federal contracts awarded to small businesses.

Neil Gordon is a POGO investigator.