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. SBA 5-09 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. SBA 5-16 Page 3