SBA's legal woes not over with appeal


SBA's legal woes not over with appeal

By Meredith Somers

Federal News Radio

November 21, 2016

The American Small Business League wants the

last word on whether a Fortune 500 company can be considered a "small


The ASBL recently filed an appeal with

the U.S. Court of Appeals for the Ninth Circuit, against a judge's

decision to dismiss the league's case against the Small Business


"Of course, I was very disappointed the judge

dismissed the case, but the way he dismissed it I was happy with,"

said Lloyd Chapman, ASBL president. "Our case was really about trying to

get an injunction to two SBA policies that we feel are illegal: the

grandfathering policy that allowed for them to report awards to Fortune 500

firms as small business contracts and the exclusionary rule that they use

to exclude two-thirds of the federal acquisition budget from their


"When you look at the judge's ruling, it

really doesn't even look like the same case," Chapman continued. "It

looks like a ruling about someone who's challenging in the way information

is reported."

The dismissal states that Congress established the law requiring SBA

to give lawmakers information on federal small business contracting.

"If the Small Business Administration is

giving Congress bad information, then Congress can do something about it,

either in an oversight or legislative capacity," the dismissal states. "Having

requested the report, Congress, not the judiciary, is in the best position to decide

whether it's gotten what it wants."

Every year agencies must report to the SBA on

whether or not they met small business contracting goals, and if an agency

doesn't meet the goal, it must provide SBA with the reasons why the goal wasn't

reached and a plan on how to address it.

The SBA shared earlier this year that in

fiscal 2015, the government reached — and in fact surpassed — its 23

percent overall small business procurement goal by spending 25.75 percent, or

$90.7 billion on small business contracts.

The ASBL filed its original lawsuit  May 3 against the SBA, claiming the

agency has adopted the practice of awarding small business contracts to

Fortune 500 companies and met its goaling reports through "creative


"SBA characterizes contracts awarded to

Fortune 500 corporations as 'small business contracts' for the purpose of

claiming federal agencies have attained their small business contracting

goals," the ASBL stated in its lawsuit.

The ASBL also claims in its suit that the SBA

can only say it meets the 23 percent goal by "creating, through agency fiat, a

class of government contracts which are, solely in the view of the SBA, subject

to exclusion from being considered as part of 'the total value of all prime

contract awards' as stated in the Small Business Act."

The SBA in its motion to dismiss, said it's

not SBA's practice of "misclassifying contracts," but rather "the Department of

Defense, [General Services Administration], and NASA — through the FAR,

and under guidance from the Office of Management and Budget — make each agency

individually responsible for submitting and certifying the veracity of its

contracting data to Federal Procurement Data System."

John Shoraka, SBA's associate administrator

of Government Contracting and Business Development, told Federal News Radio in

a May interview that SBA's exclusion practice was a carryover from the previous

administration, but is being updated.

The judge who dismissed the case said under

the Administrative Procedure Act, federal courts are not allowed to review

everything an agency does, only "final agency action."

The SBA goaling report doesn't meet the test

for final agency action, according to court documents.

"It neither alters the legal regime to which

individual agencies or small businesses are subject, nor results in direct and

appreciable legal consequences," the dismissal states. "The report does not

carry penalties for an agency's failure to meet the small business

participation goal. It does not bind agencies to comply with any proposed

remediation plan. Any appreciable consequence of the report — such as an

agency's decision to start awarding more contracts to small businesses — would be

indirect, because the agencies make the ultimate decision whether and how to

award contracts."

Despite the legal setback, Chapman remains


"Well, I think Congress passed the Small

Business Act and it's the Justice Department's job to enforce that law, and the

judge cannot think that it's up to Congress to do this," Chapman said. "I think

the ninth circuit will agree with me, that Fortune 500 firms aren't small

businesses, and the word all means all. The Small Business Act says all

small businesses shall receive a minimum 23 percent of all contracts. Yet the

SBA has admitted that they use their exclusionary rule to exclude contracts for

a variety of reasons."

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