The General Accounting Office is planning to release next month a report on the extent of fraud by large companies getting federal contracts by claiming to be small businesses.

A GAO spokeswoman confirms the investigation is under way.
The Microcomputer Industry Supplier Assn. continues to do its own research on the extent of the problem.

We keep searching the Internet and are finding large companies that appear to be getting federal contracts on the basis of claims they are small, says Lloyd Chapman, MISA president.

Many of MISAs approximately 1,000 members flooded GAO, the Small Business Admin and the General Services Admin. with complaints they are losing business to large companies falsely claiming to be small.

Fred Armendariz, associate deputy SBA administrator for government contracting & business development, writes Chapman assuring him the agency is reviewing the information sent by MISA and we will take appropriate action to remove those firms from PRO-Net if they are not small businesses.

Armendariz tells Chapman SBA received 273 size protests in FY 2002 and 85 firms were determined not to be small.

He notes that even if a firm is listed on PRO-Net, SBAs Internet database for small companies, it must self-certify as a small business when it submits a bid on a government contract.

Meanwhile, Boyd Rutherford, associate GSA administrator in charge of the Office of Enterprise Development, denies in a letter to the editor of The Washington Times he said there is widespread fraud by firms abusing the self-certification system.

Contrary to the impression left in the article, GSA does not believe that its business partners are intentionally misrepresenting their status in order to qualify as small businesses when they have outgrown this status, writes Rutherford, who provided MBI with a copy of the letter.

Marguerite Higgins, the reporter who wrote the Dec. 6 story, tells MBI she stands by the quotes.

If the GAO study supports the claims of Chapman and the MISA members there is widespread fraud, it could have drastic consequences.

Any companies falsely claiming to be small would face criminal penalties and fines. Moreover, such a finding would bring into question the effectiveness of the federal governments quarter-century effort to do more procurement from small businesses.

The statutory goal is to send 23% of procurement dollars to small businesses. The federal government missed that target in FY 2000 and 2001 (MBI, 4/25p4; 5/10/01p3). The report for FY 2002 by the Federal Procurement Data Center will be out in the spring.

Recertification in the works

Rutherford notes in his letter to the Times GSA, SBA and the Office of Management & Budget are taking steps to remedy any problems.

Many derive from the fact companies grow to exceed size standards, often because they got a government contract. The practice has been to treat them as small for the duration of the contract.

GSA expects to place in effect next month a requirement for firms to recertify as small businesses at the start of each five-year option period.

SBA has proposed a rule requiring recertification for follow-on contracts but not for the exercise of options. It further says it is considering a regulation to set a five-year limit on the period a firm can be considered small unless it continues to meet the size standards (MBI, 11/27p1).

While satisfied his efforts have moved federal agencies to action, Chapman remains critical they allowed the problem to grow.

To say SBA and GSA were unaware of this problem is jut not believable, he tells MBI. The information weve collected makes it look like the agencies have known about this problem for some time.