Fraud & Abuse is Rampant in SBA Procurements


Small businesses across the nation are losing contracts that were legally set aside for legitimate small businesses, due to large corporations fraudulently misrepresenting themselves as small businesses.

A brief look at the widespread fraud

Through a combination of misguided Small Business Administration policies, fraud, abuse, loopholes and a lack of oversight by the SBA large firms are able to obtain small business procurement awards, and those awards are counted towards the 23 percent small business procurement goal.

  • 98 percent of all firms have fewer than 100 employees, according to the U.S. Census. Until 1985 the SBA defined a "non-manufacturer" small business as one with fewer than 100 employees. In 1986, that definition was changed to allow up to 500 employees.
  • On June 30, 2007, an SBA rule change mandated that all firms receiving federal small business contracts must re-certify th eir small business status every 5-years.   However, prior to June 30 th companies were required to re-certify that status every 20 years.   Through this loophole, large firms were able to acquire small companies with long-term -- 10 to 20 year -- small business contracts and maintain those contracts through that re-certification period.
  • Despite the SBA's efforts to reduce the recertification period, a 5-year recertification period still constitutes a significant loophole for large firms.   We estimate that through this "grandfathering" policy , from 2007 to 2012 more than $300 billion dollars will be diverted from legitimate small businesses to some of the largest companies in the United States and Europe.   That constitutes more than $60 billion a year.
    • There has been a long history of fraud and misrepresentation. The SBA's Office of Inspector General in 1995 reported a "particular fraudulent practice" of companies continuing to falsely claim eligibility for small business set-aside contracts even after the SBA had prohibited them from doing so. http://www.sba.gov/ig/sba509.doc Page 48
    • A decade later, Report 5-16 from the SBA Inspector General cited a multiple award contract given "based on a false certification." The company cited had claimed to be a small business and a manufacturer, but in fact was an affiliate of the actual manufacturer, a large business. http://www.sba.gov/ig/05-16.pdf Page 3

The ABSL's progress fighting against fraud and abuse

1.   600 large businesses have been stopped - our information prompted their removal from SBA's database of small businesses.

2.   Victorious in reducing the SBA's Information Technology Value-Added Reseller size standard from 500 to 150.

3.   Provoked a GAO investigation resulting in Federal Government confirmation that a majority of contracts are going to some of the world's largest companies.

4.   Prompted a Congressional Hearing within the House and Senate Small Business Committees.

5. Gathered overwhelming support for the reduction in the size standard from 500 to 100 when the SBA sought public comment. In response to ASBL efforts; we were offered support from the U.S. Chamber of Commerce, Small Business groups, and concerned small businesses across the country.

The ASBL's ongoing goals

The ASBL is fighting to end the fraud, abuse, loopholes, and a lack of oversight , which has led to the diversion of federal small business contracts from legitimate small businesses to some of the largest corporations in the United States and Europe.   These indiscretions are allowing large firms to steal tax dollars set aside for small businesses with no consequences.  

Our battlefronts are the Office of Management and Budget, SBA, Congress and every federal agency awarding federal, state, and local contracts . We are working hard to encourage the government to adopt new laws and regulations that will preclude the federal government from reporting awards to large businesses as small business procurement awards and punish firms that misrepresent themselves as small businesses.   In the pursuit of our goals we intend to:

  1. Force the SBA and Justice Department to properly investigate fraud and misrepresentation in small business contracting.
  2. Misrepresenting a firm as a small business to illegally receive federal contracts and subcontracts is a felony with penalties of up to ten years in prison, a fine of up to $500,000, cancellation of all contracts and debarment from selling to the government in the future. Based on information provided by Lloyd Chapman of the ASBL , The SBA was forced to remove 600 large businesses from their small business database. None of those firms were penalized.

  3. Return the definition of small business back to 100 employees.

    98 percent of all U.S. firms have less than 100 employees and 89 percent have less than 20 employees. In 1985, the SBA increased the small business size standard for non-manufacturers from 100 to 500. ASBL prompted the SBA to propose reducing the small business size standard back to 100 and the SBA received unprecedented and overwhelming public support for this change.
  4. Eliminate the SBA's 5-year re-certification policy.  

    Under this policy, large firms that have obtained small businesses with long-term federal small business contracts will be able to maintain those contracts through 2012.   We intend to fight for annual re-certification, which would remove large firms from federal small business contracting today, not 5 years from now.  
  5. Enforce "Liquidated Damages" and all other existing federal laws for non-compliance with small business goals for prime contractors.

    The law requiring prime contractors to pay "Liquidated Damages" for failure to make a good faith effort to reach their small business subcontracting goals has NEVER been enforced. As a result most prime contractors never achieve the small business goals stated in their government prime contracts.
Video: ASBL President Lloyd Chapman with CNN's Lou Dobbs



"The SBA awarded 4 of the 6
high dollar procurements,
reported as small
business procurements,
to large companies...

SBA OIG Report 5-14
February 24, 2005


Documents worth a look..


©2017 American Small Business League | Contact Us | Lloyd Chapman | 3910 Cypress Drive, Petaluma, CA 94954 | (707) 789 9575