Flaws are found in Small Business Administration program
By Dan Laidman
Contra Costa Times
December 29, 2004
At least $2 billion worth of government contracts slated for small businesses went instead to large corporations -- including Hewlett-Packard Co. and Oracle Corp. -- in fiscal 2002, charged a report released Tuesday by the Small Business Administration's Office of Advocacy.
By federal law, the government aims to award nearly a quarter of direct contracts to small businesses every year.
Thomas Sullivan, the head of the advocacy office, said the study reveals problems with the federal procurement system, which small business groups and government watchdogs have been criticizing for some time. Critics say large firms are getting contracts intended for small businesses.
"We now have hard data, and not just anecdotes, from across federal agencies that shows contracts meant for small businesses were going to larger firms," Sullivan said in a statement.
Bay Area technology giants Oracle and Hewlett-Packard were among the corporations the report mentions as receiving purported small business contracts in 2002. Hewlett-Packard received more than $12 million in such awards and Oracle about $11.6 million.
Neither company responded to requests for comment Tuesday.
The Office of Advocacy tapped Virginia-based Eagle Eye Publishers Inc. to examine contracts awarded to 1,000 top small business contractors in fiscal year 2002. The analysis found that among the sample, 39 were actually large companies and five were other sizable entities, totaling more than $2 billion in "miscoded" contracts.
"We're not saying that anyone did anything wrong necessarily," said Chad Moutray, chief economist for the Office of Advocacy. "It could be perfectly legitimate that you're a small business and you received your small business set-aside and after the fact you were acquired by a large business."
The report said other causes of the discrepancy could be small firms growing after receiving a government contract or simple human error.
David A. Drabkin, the deputy chief acquisition officer for the General Services Administration, said that such misidentified contracts do not necessarily translate to losses for small firms. He said that at the time most contracts are awarded, they are properly going to small businesses.
"No contracts set aside for small business competition were awarded to large businesses," Drabkin said in a statement sent to the Times.
The report showed that the vast majority of the suspect contracts were awarded by the General Services Administration and the Department of Defense. Officials at the Pentagon's Office of Small and Disadvantaged Business Utilization had not seen the report Tuesday and therefore declined to comment, said Lt. Col. Sandra Burr, a spokeswoman for the office.
The Washington, D.C.-based non-profit Center for Public Integrity issued a report several months ago showing that some of the nation's largest defense firms received billions of dollars in small business contracts in recent years. The Government Accountability Office has also documented the problem in reports to Congress.
The American Small Business League, a Petaluma-based entrepreneurs' advocacy organization, sued the Small Business Administration in federal court in October seeking a copy of the Eagle Eye report. The league has charged that what the SBA dismisses as "miscoding" could actually point to fraud or abuse.
Lloyd Chapman, president of the American Small Business League, could not be reached for comment Tuesday.
SBA spokesman Raul Cisneros said that if fraud is discovered it will be dealt with. However, he said the problems in the report most likely have innocent explanations and that the SBA has recently taken steps, like making certification for small contractors stricter, that will correct the errors.
"We're always striving for more timely and accurate data," he said.