Petaluma, Calif. – President Barack Obama’s small business jobs bill contains a dangerous loophole that could encourage billions of dollars in fraud in small business contracting programs, and protect fraudulent companies from prosecution.  The bill is currently pending in the U.S. Senate.

Section 1341 of H.R. 5297, the Small Business Jobs Act, contains provisions that would allow the Small Business Administration (SBA) to develop policies and procedures that would protect large businesses that have misrepresented themselves as small businesses from prosecution for felony contracting fraud. 

Since 2003, over a dozen federal investigations have found billions of dollars a month in federal small business contracts have been diverted to Fortune 500 firms, large businesses throughout the U.S. and some of the largest companies in Europe. 

In 2005, the SBA Office of Inspector General (SBA IG) referred to the diversion of federal small business contracts to large businesses as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documents/05-15.pdf)

In Report 5-16, the SBA IG found that large businesses had received federal small business contracts fraudulently by making “false certifications” and “improper certifications.” (https://www.asbl.com/documents/05-16.pdf)

Section 1341 of President Obama’s jobs bill would give the SBA a blank check to develop policies that could protect large corporations from prosecution under the law.  Section 16(d) of the Small Business Act prescribes a penalty of up to ten years in prison and a fine of not more than $500,000 per occurrence for firms that have misrepresented themselves as small businesses.

For over a decade, the SBA has attempted to cover-up flagrant abuses in the program by claiming they were the result of miscoding and computer glitches.  In one case, Pevco, a Baltimore based small business began losing small business contracts to one of the largest companies in Switzerland. Pevco Chairman Fred Valerino Sr. contacted his congressman, and the SBA responded by claiming that Translogic Corporation received 147 small business contracts over a six-year period “accidentally.”

“The harm done to small businesses by Section 1341, would greatly outweigh any minor benefit the other provisions of the bill might provide,” ASBL President Lloyd Chapman said. “This paragraph could legalize billions of dollars in federal contracting fraud and be tantamount to repealing the small business act.  We are going to do everything we can to block this section of the bill.  It would only encourage fraud and abuse, divert more federal funds away from legitimate small businesses, and cost America jobs.”