When the Small Business Administration barred a Virginia technology firm from bidding for federal contracts recently, some hoped it signaled a turnaround at an agency that had a well-earned reputation for looking the other way as big corporations muscled-in on work meant for smaller companies.

GTSI Corp., which had signed $1.2 billion in federal contracts between 2004 and 2010, was the first large government contractor suspended since 2008, when IBM was suspended for one week. But less than three weeks after the GTSI suspension, the SBA struck a deal with the firm and lifted the order. 

The GTSI case reflects a broader problem confronting the nation's struggling small businesses. Large corporations routinely reap billions of dollars from federal contracts intended to help mom-and-pop firms. In the last decade, a dozen federal investigations and Congressional inquiries have turned up billions of dollars annually that go to big corporations despite legal mandates that small businesses win a share of federal contract dollars.

"By failing to hold firms accountable, SBA and contracting agencies have sent a message to the contracting community that there is no punishment or consequences for committing fraud," according to one Government Accountability Office report  reviewed by Newswire21.

At the time the suspension, GTSI said the suspension was lifted after the firm agreed to "bring in an SBA-approved monitor to report to the SBA on GTSI's compliance with the agreement."  In another part of the deal, GTSI's chief executive officer and corporate attorney resigned.  "GTSI will continue to cooperate with the continuing investigations of its conduct as a subcontractor for certain small businesses," the company said in a statement. Paul Liberty, company spokesman, declined to elaborate on how the problems began or on the solution worked out with the agency.

The SBA claims it is attempting to address the concerns. "The problems were not created overnight and we have taken steps to address them," said Joe Swain, SBA spokesman in Washington. He pointed to the Small Business Dashboard launched September 15 that can help track mistakes in contract awards.  When discrepancies are found by contracting companies, Swain said, the SBA issues annual "anomaly" reports. 

"We are not afraid of the transparency on this," he said, adding that the SBA has been "much more aggressive" since President Obama took office.

But the more expansive website long used by contractors is the Federal Procurement Database. According to allegations in a federal lawsuit filed by the American Small Business League, the agency has proposed removing a key requirement from the FPD so that companies would no longer be required to swear under oath that they qualify as small businesses.

Specifically, the small business advocacy group claims the SBA moved in March to eliminate the one spot in the long-standing FPD that companies must designate, under penalty of perjury that they are a small business.  Swain claims there are other places in the contracting process that require firms to make sworn statements in order to prevent fraud.

While there may be other places in the labyrinthine government filing process that requires such certification, the Federal Procurement Database is the place where the public and watchdog groups can monitor the accuracy of corporate contractors and the SBA's oversight efforts.

Public Portal

The two sides have been in settlement talks for months without resolution.

"There is no reason they [SBA] should keep destroying evidence that could be used to prosecute these firms for fraud," ASBL founder Lloyd Chapman said in an interview.

Chapman (ASBL Photo)

Chapman asked a US District Judge William Alsup to block the changes. In March, the judge let Chapman question SBA employees about the reason for proposal. 

Alsup speculated in court that there may well be large firms "on K Street in Washington," a reference to the address of many lobbying firms, that pressured the government to eliminate the document trail Chapman wants to preserve.

"I think the judge was right," said Chapman, who claims the SBA wants to eliminate the very coding  "we need to sue [companies] for fraud."

The 23% Target
Thirty years ago Congress mandated that 23 percent of its prime contract dollars go to small business. But the goal has also created a perverse incentive for the SBA and other federal agencies to ignore large corporations that claim small business status because big awards allow the agencies to get closer to meeting the target.

When small company status is attributed to a large corporation in a contract, the SBA's traditional response to the problem has been to retroactively reduce the count toward the 23 percent tally - but not to redirect the contract to a true small business. This deprives small businesses of  winning their fare share of government business, according to Chapman.

The SBA recently reported that small businesses won nearly $97 billion in federal prime contracts last year, just shy of the 23 percent goal. But ASBL claims that figure is inflated by dollars that have wrongly gone to big corporations claiming small business status.  

"My guess is that legitimate small businesses are getting less than $50 billion a year, just a few percent of the goal," said Chapman.

ASBL's review of the top 100 recipients of federal small business contracts for fiscal year 2009 showed 61 were actually large businesses, many are household names like Lockheed Martin, Boeing, Raytheon, British Aerospace and Bechtel Corp. 

Undetected Errors
As recently as March, the GAO reported that its own investigation of 14 cases, found $325 million in contracts went to firms whose presidents lied about income, ethnicity or underreported assets to the SBA. Yet in some cases the SBA did not detect the falsehoods and certified the firms as small businesses, according to the GAO.

To be sure, some of the designations of small business status stem from outdated information, such as when a large company buys a small one, or when a small business outgrows the designation.  But other cases appear to be intentional.  As many as 60 of the top 100 small business contract recipients were large firms, some even in the Fortune 500, according to the ASBL, which currently has six suits pending in federal court in San Francisco.

Although an interagency task force on federal contracting opportunities for small business issued 13 recommendations to improve transparency in deals with small businesses, the loss of contracts to big business competitors is unlikely to turn around soon.

Now the SBA faces a merger issue of its own. On November 11, the President's special commission on debt reduction included a plan to eliminate the SBA by merging its operations into the Department of Commerce for an estimated $1 billion savings over the next three years.

Next in Part 2:  One small company's challenge

Source: http://redwoodage.com/content/view/233424/49