Petaluma, Calif. - Since 2003, over a dozen federal investigations have found billions of dollars in federal contracts earmarked for middle class firms have been diverted to Fortune 500 companies. A recent story in the Washington Post found over 40 percent of government small business contracts actually went to Fortune 500 firms. Even though the diversion of government small business contracts was first exposed in 2002, Congress has not passed a single piece of legislation to address the problem.

Now politicians in Washington are talking about creating new economic stimulus packages for the middle class. The American Small Business League (ASBL) believes that it does not make sense to create new programs to boost the middle class when the existing programs that were designed to direct federal contracts to middle class firms have been corrupted.

Congress needs to act now to pass legislation to end the diversion of small business contracts to Fortune 500 companies. The fastest and simplest way to stimulate the middle class economy is to enforce existing laws and end fraud and abuse in the existing federal programs to assist small businesses.

The ASBL makes the following recommendations to address existing problems in federal small business contracting programs, and to bolster the middle class economy:

1.  Support the Small Business Fairness and Transparency in Contracting Act:
The ASBL has produced draft legislation with Senator Barbara Boxer (D - CA) that would preclude the federal government from counting publicly traded firms towards the congressionally mandated 23 percent small business procurement goal.

2.  Abolish the comprehensive test program:
The comprehensive test program allows contractors to avoid penalties for non-compliance and avoid submitting reports that are used to track compliance with small business sub-contracting goals.  As a result, the program allows prime contractors to circumvent small business programs designed to assist small businesses and firms owned by women, minority and veterans.

3.  Enforce "Liquidated Damages": 
FAR clause at 52.219-16, entitled "Liquidated Damages," created a penalty for prime contractor non-compliance with its small business sub-contracting plans.  The law has never been enforced. As a result, most prime contractors never achieve the small business subcontracting goals stated in their government issued prime contracts.

4.  Remove any restrictions from the $100,000 small business set-aside: 
The FAR Council exempted any acquisition on the General Services Administration (GSA) schedule from the congressionally mandated $100,000 small business set-aside for small businesses.  Removing this exemption would provide small businesses with more access to federal small business contracting opportunities.

5.  Aggressively prosecute fraud and misrepresentation in federal small business programs:
Misrepresenting the size of a firm in order to illegally receive federal contracts and subcontracts is a felony with penalties of up to 10 years in prison, a fine up to $500,000, cancellation of all contracts and debarment from federal contracting programs. Policy should require the SBA to respond to any protest against any firm that misrepresents its size, regardless of whether or not the contract is a small business set-aside.

6.  Require the SBA to publish the previous years contracting data within 90 days of the end of the fiscal year:
The SBA should be required to publish the previous years contracting data in a public forum within 90 days of the end of the fiscal year as a means of maintaining transparency and determining whether or not the federal government was compliant with the congressionally mandated small business procurement goal. The SBA regularly waits 10 months or longer to release the data despite the fact that the data exists in a real time database and could be released following the end of the government fiscal year.

7.  Reporting the names of firms coded as small businesses:
As a means of increasing transparency in federal small business contracting programs and ensuring that the federal government is adhering to its congressionally mandated small business procurement goal, each year the Administrator of the SBA should be required to report the names of companies coded as receiving federal small business contracts.  The reporting should be released to the public and placed in a prominent position on the SBA's web site.  This year, the ASBL was forced to file suit against the SBA in United States Federal District Court as a means of obtaining the names of firms coded as small businesses for 2005 and 2006.  Last month, the SBA appealed a federal district court decision in favor of the ASBL to the Ninth Circuit Court of Appeals.

8.  Put the Central Contractor Registration (CCR) database back under the control of the SBA: 
The SBA is charged with administering all federal programs designed to assist small businesses.  We believe that the CCR should be removed from the jurisdiction of the Department of Defense (DoD) and placed back within the jurisdiction of the SBA allowing the agency to monitor compliance with CCR regulations more effectively.

9.  Put a warning on CCR: 
Currently many of the profiles for firms registered on the CCR are filled with unreliable and fraudulent data.  As a result, large businesses are regularly coded as small businesses by contracting-officers government wide.  Recently, federal investigations have found that firms intentionally put fraudulent information in the CCR database to illegally receive federal small business contracts. The warning should state clearly:  Misrepresentation of a large firm as small for the purposes of obtaining federal small business contracts is punishable under section 16 (d) of the Small Business Act (15 USC §. 645(d)).

10.  Restore the fields on the CCR: 
As a means of maintaining transparency in federal contracting programs, fields which have been removed from the CCR or made optional such as: capability narrative, primary NAICS code, total number of employees and annual revenue; should be restored as required fields and made available to the public.   

11.  Require all government contractors claiming small business status to recertify annually:
Current federal policy requires all government vendors to update their information on CCR annually; therefore annual re-certification can be completed at that time simply by updating one box in the database. Annual re-certification will be a simple, easy, quick and efficient way to stop the flow of billions of dollars in federal small business contracts to Fortune 1000 firms and other large businesses. In the past, annual re-certification has already been endorsed by the SBA (prior to the arrival of Steven Preston), the SBA Office of Inspector General, the Office of Federal Procurement Policy, the Senate Small Business Committee and the Office of Management and Budget.

12.  Abolish the Alaska Native Program or place the same $3 million contract cap that every other government program for minorities has: 
The government is hitting its minority-owned small business procurement goal with no-bid, no ceiling Alaska Native Corporation (ANC) 8(a) contracts.  The way to solve the problem is to level the playing field by imposing the same contract ceiling as all other federal programs for minorities on the ANC Program.  This would provide small minority-owned businesses with more opportunity to compete for and obtain federal small business contracts.

13.  Oppose H.R. 3567, H.R. 5819, S. 3362 and any other legislation that allows billionaire venture capitalists to participate in federal small business contracting programs:
The Small Business Act states that a small business must be "independently owned and operated."  H.R. 3567 would allow firms that are controlled by some of the nation's wealthiest investors to be treated as small businesses. This would create a staggering loophole that would result in the diversion of billions of dollars in federal small business contracts away from the average American small business and into the hands of some of the nation's wealthiest investors. That said, the recent series of House and Senate bills designed to reauthorize the Small Business Innovation Research (SBIR) Program would allow firms that are owned and controlled by billionaire venture capitalists to participate in federal programs designed for small businesses.  These bills fly in the face of the original intent of the SBIR program and create a dangerous precedent for venture capital participation in all government programs designed for small businesses.  We believe this legislation could force thousands of businesses across the United States to close their doors and cause serious damage to an already floundering middle class economy.