As it celebrates National Small Business Week, the Small BusinessAdministration is facing renewed accusations that its efforts to reserve workfor small contractors have been distorted by accounting tricks andmisapplication of the law that permits large companies to win the awards.

Public Citizen, the nonprofit that pushes an anti-corporate view of trade,the environment, campaign finance and product regulation issues, releaseda report on Wednesday saying SBA "may be floutingthe law," perhaps for political reasons.

The study of controversies over the SBA-coordinated program to help federalagencies meet the goal of 23 percent of purchases from small businesses drawson the work of the Petaluma, Calif.,-based American Small Business League,which has long battled SBA and the Defense Department over the definition of a smallbusiness. But the league, Government Executive has learned,does not think Public Citizen's conclusions go far enough.

The SBA's claims "that the government has met or nearly met a requirement tomake 23 percent of its purchases from small businesses are misleading and relyon methodologies that conflict with federal law and regulations," argued thereport by Taylor Lincoln, research director for Public Citizen's Congress Watchdivision.

In 2013, seven of the 10 largest federal contractors received at least onecontract that SBA counted toward fulfillment of small business goals, thereport said. Of the 100 contractors receiving the most federal dollars countedtoward small business goals in 2012, 71 did not meet the government's standardsto qualify as small businesses, the report said, citing the American SmallBusiness League.

An "exception to the law's requirements on subcontracting plans exists forparticularly large defense contractors," Public Citizen said in the report. Arecently renewed 25-year-old Pentagon research project called the Comprehensive Subcontracting Plan Test Program authorizes participatingcompanies to engage in the "negotiation, administration, and reporting ofsubcontracting plans on a plant, division or company-wide basis asappropriate," the report noted.

Public Citizen then described 2014 congressional testimony from SBA AdministratorMaria Contreras-Sweet in which she said contracts held by very large businessescould count toward small business goals because of a rule allowing smallbusinesses that are acquired by large businesses to have their small businessstatus "grandfathered in" for up to five years, as the report put it.

Public Citizen argued that statement is "inaccurate," noting that SBA'sinspector general for a nearly a decade has reported procurement flaws that"allow large firms to obtain small business awards" in an annual list of agencychallenges. "A federal regulation that took effect in 2007 requires contractorsthat are acquired to recertify their size almost immediately," Public Citizensaid. "Subsequent orders relating to contracts held by acquired businesses thatno longer qualify as `small' may not be counted toward the government'sfulfillment of its small business goals.

Lawmakers have also been on the case. The House Small Business Committee inMarch approved a proposal from Rep. Janice Hahn, D-Calif., for a GovernmentAccountability Office study on the issue.

Asked by Government Executive about the Public Citizenreport and whether the administrator misspoke, an SBA spokeswoman said in anemailed statement: "The rules of contracting are complex. The administrator wasasked a general question, to which she provided a general explanation. To givea more complete answer, SBA would need to see the specific award that was beingasked about and then, SBA could provide the best answer. In general, whena firm grows organically, the agency can continue receiving small businesscredit for up to five years. … [But] in the case of a merger or acquisition,the agency should be notified within 30 days and the small business creditshould be discontinued."

Public Citizen concluded that "U.S. programs intended to level the field forsmall businesses and other historically disadvantaged businesses are riddledwith errors, anomalies and exceptions. These generally seem harmful to smallbusinesses' ability to realize the contracting goals laid out in laws andregulations."

Though it is tricky to explain the problem through a single politicalfactor, the report continued, "it seems reasonable to assume that they wouldnot exist to such a large degree if small businesses, for instance, furnishedthe majority of post-retirement jobs for military officials, performed thelion's share of contractor lobbying or gave the majority of campaigncontributions from contractors."

Lloyd Chapman, the founder of the business league that fed material toPublic Citizen researchers, told Government Executive the report"reads like it was written by the SBA press office." He said he thinks someonefrom the agency should be brought before Congress the same way Internal RevenueService official Lois Lerner was called to testify after the surfacing of the2013 controversy over political targeting by the tax agency.

 "No one in the SBA is held accountable," Chapman said. "It's typicalWashington softpedaling of hundreds of millions of dollars in felony federalcontracting fraud." 

To view full Government Executive article, click here: http://www.govexec.com/contracting/2015/05/advocacy-group-accuses-sba-misapplying-law-small-business-set-asides/112240/