Lawsuit seeks SBA report on contracting fraud.


Lawsuit seeks SBA report on contracting fraud.

Set-Aside Alert
October 22, 2004

A new small business advocacy group has filed suit seeking to compel SBA to release a report that it says documents fraud and abuse in federal contracting.

The California-based American Small Business League, headed by longtime SBA critic Lloyd Chapman, sued in San Francisco federal court under the Freedom of Information Act for access to a report that it says was prepared by a contractor for SBA's Office of Advocacy. "We believe (the) report confirms wide-spread fraud in federal contracts, and that the SBA is covering up the problem by keeping the report under wraps," Chapman said.

An SBA spokesman said he could not comment on the suit or the report.

Chapman contends that many large companies are fraudulently posing as small to qualify for set-aside contracts. His complaints sparked a General Accounting Office investigation last year that found many large companies were classified as small on some contracts, but GAO blamed loopholes in laws and regulations rather than fraud. (SAA, 5/16/03)

This month a private watchdog group, the Center for Public Integrity, found that 30% of Defense Department contract dollars reported as going to small businesses actually went to large ones. The Center examined all DOD contracts over the past six years. (SAA, 10/ 8)

Federal procurement officials point to loopholes, such as one provision that counts a small business as small throughout the life of any contract, even if the company outgrows size standards.

But Chapman says he has found many instances where large corporations deliberately misrepresented themselves or their subsidiaries as small businesses. He says the SBA report he is seeking will show that.

In testimony last year before the House Small Business Committee, he said his examination of SBA's Pro-Net database of small companies had found "dozens of examples where firms had blatantly misrepresented their number of employees, NAICS codes and their affiliation with large businesses."

At that same hearing, SBA said it had removed more than 600 companies from the Pro-Net listings.

Chapman said SBA had refused his request to make public the names of companies that were removed, so contracting officers would know the firms no longer qualified as small. The SBA inspector general made the same recommendation in a 1995 report, but the agency never complied.

The lawsuit, filed by Gutierrez-Ruiz LLP, alleges that SBA's report "contains statistical and other factual information about the allocation of contracts which is not subject to any exemption under the Freedom of Information Act, and must be disclosed."

TheSmall Business League's website is



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