In a move to stop counting large businesses as small ones, the new heads of SBA and OMB's Office of Federal Procurement Policy said they are taking steps to improve the accuracy of small business contracting data.

In a memo to agencies' chief acquisition officers, SBA Administrator Steven Preston and OFPP chief Paul Denett wrote, "SBA will soon issue a regulation to revise the rules regarding contractor reporting and certifying of small business size status."

They gave no details about the revised rules. In 2003 SBA proposed requiring small firms to recertify their size status ever year, but no final rule has been issued. The Senate Small Business Committee has recommended requiring annual recertification in the SBA reauthorization bill that is now pending in the Senate.

The memo is SBA's first action to deal with long-standing criticism of the Federal Procurement Data System, the official database of contracting information. Many critics inside and outside government have complained that, even after a new "Next Generation" system was put in place last year, the data are inaccurate and inflate the small business share of federal procurement.

In June SBA reported small firms received a record 25.4% of prime contract dollars in fiscal 2005, based on FPDS figures. But Democrats on the House Small Business Committee said their analysis of the figures found that small businesses received only 21.6% of the dollars. They said $12 billion in contracts that were counted as small businesses actually went to large corporations, universities or other nonprofits. (SAA, 6/30 and 8/11)

Some critics have charged that large companies are fraudulently misrepresenting themselves as small ones, but the Preston-Denett memo echoes more innocent explanations given by SBA officials in the past: that small businesses outgrew their size standard during the life of a contract; a small firm was acquired by a large one; a contractor made a mistake in filling out a form; or there was a mistake in data entry to FPDS.

Preston and Denett said they want to know why large businesses were counted as small in reports to FPDS. In a follow-up memo, Karen Hontz, SBA associate administrator for government contracting, sent agencies a list of large companies found to be classified as small and asked them to explain how each of the errors occurred. She asked for reports by Nov. 20.

The Preston-Denett memo said, "Transparency and accurate data are critical to insuring the integrity of the acquisition system, and we are taking steps to increase transparency and the accuracy of Federal procurement and small business data."