Agencies came up short in meeting their small-business contracting goals in 2007, according to a new federal report. Agencies awarded only 22 percent of their contracting dollars to small businesses, short of the government-wide goal of 23 percent. That performance is worse than in 2006, when the government awarded 22.8 percent of contract dollars to small businesses.

And even that 22 percent figure is an overstatement: The Small Business Administration admits that at least $5 billion of the government’s $83.3 billion worth of small-business contracts in 2008 — or about 6 percent — went to large corporations, not to legitimate small businesses.

If one subtracts those erroneous $5 billion worth of contracts from the calculation, the government would have awarded only 20.6 percent of its contract dollars to small businesses.

Sandy Baruah, SBA’s acting administrator, released an annual report card on the state of the government’s small-business contracting.

Baruah attributed the shortfall in small-business contracting to the fact that data measuring agencies’ progress is more accurate than in previous years. Agencies often incorrectly miscode contracts they award as small-business contracts even though they aren’t. Starting last year, agencies had to certify the accuracy of their data with the Office of Management and Budget. This has created a more accurate goaling report, but the data still is not perfect, Baruah said.

“Errors are out there,” Baruah said. “We need to do more to correct them.”

One such error highlighted by The Washington Post today involved 207 Lockheed Martin contracts coded as small-business contracts. Those errors added $143 million to the government’s small-business spending.

SBA says it should be able to produce a more accurate report for fiscal 2008 — which won’t come out until next year — because 2008 was the first full year when businesses had to recertify their size immediately after being acquired by large companies.

Karen Hontz, SBA’s director of government contracting, said large businesses may be showing up in 2007 data because the rules governing recertification didn’t change until July 2007. Before July 2007, companies deemed small at the time of a contract award got to keep that status for the life of the contract, regardless of whether they outgrew their status or were bought by large companies, she said.
Chris Gunn, a spokesman for the American Small Business League, was skeptical of SBA’s explanations. The more SBA claims to clean the data, the further the government gets from the 23 percent small-business goal, he said.

The government must commit itself to doing business with legitimate small businesses and start reaching its goals, Gunn said. Gunn suspects the government will continue to fall further from the goal as more large businesses are removed from the count.

Nydia Velazquez, D-N.Y., chairwoman of the House Small Business Committee, said she did not trust SBA’s numbers. “Given the continued miscoding of large-business contracts as ‘small,’ the one thing we do know is that the actual small-business percentage is below what the SBA is claiming,” she said in a statement. Overall, the government met only one of its five small-business contracting goals in 2007: the 5 percent goal for contracting with small disadvantaged businesses. Agencies spent 6.6 percent of contracting dollars on small disadvantaged businesses in 2007.

The government as a whole missing its contracting goals for women-owned small businesses, HUBZone-certified small businesses and service disabled veteran-owned small businesses.