NewSmall Business Administration (SBA) chief Linda McMahon soon will be facing aquestion that goes to the heart of the agency's mission: Are smaller federalcontractors getting their fair share of contract awards?

The SBAin recent years has touted the successes of its "goaling reports" and"scorecards" — measures by which it monitors whether federal agencies have mettheir obligations to dole out at least 23 percent of prime contract awards tosmall businesses. The federal government in 2015 reached its small-businesscontracting goals for the third consecutive year, according to a2016 SBA report.

However,the SBA faces a wide range of skeptics who claim that the methodologies theagency uses allow it to fudge the percentage of contracts small businesses winfrom the federal government.

McMahon,the former CEO of World Wrestling Entertainment, will be addressing the issueon a number of fronts over the next few months.

Congressis set to hear from McMahon directly at an oversight hearing slated for nextweek, and may raise the issue in new legislation.

The SBAis preparing to release its next small-business goaling report so the publiccan see whether government agencies are reporting that they're meeting theirsmall-business targets. At the same time, agency leaders will be working toaddress the chronic concerns from the SBA Inspector General's office, which hastaken the agency to task on the topic in each of the past 10years.

Andnone of this is to mention the ongoing lawsuit filed by the American SmallBusiness League (ASBL), a persistent SBA critic, which is demanding that thecourts issue an injunction to revise how the agency counts which contractingbusinesses are actually "small" and which aren't. The case was dismissed infederal district court on jurisdiction grounds, but ASBL officials said they'reconfident their appeal will succeed.

It'sunclear whether the change in presidential administrations will result in arethinking of small-business contracting policy, Charles Tiefer, a Universityof Baltimore School of Law professor helping the ASBL with its case, toldBloomberg BNA.

"Nobodyknows what the new head of the SBA is going to do," Tiefer said. "Maybe she'lldecide to wrestle with the Lockheed Martin types. We just don't know."

DefendingSmall Contractors

An SBAspokeswoman declined to shed light on McMahon's plans, including whether sheplans to tinker with the agency's goaling methodologies. SBA watchers likewisesaid McMahon's contractor-related aims remain unclear.

Duringher Jan. 24 Senate confirmation hearing, McMahon said she looked forward toserving as an advocate for small contracting businesses, so that they "reallyhave that fair shot" at winning contracts over larger competitors. But sheprovided few details as to how she might accomplish that goal.

Thatmay soon change. The House Small Business Committee will be holding its firstoversight hearing with McMahon on April 5, Kelley McNabb, the committee'scommunications director, told Bloomberg BNA.

Smallcontractor goaling has been a persistent issue in previous hearings and willlikely be raised again next week, a committee source said.

Thepanel also is likely to pursue legislation to address the issue, at leastaround the edges. A bill co-sponsored by Committee Chairman Rep. Steve Chabot(R-Ohio) and the panel's ranking member, Nydia Velazquez (D-N.Y.), last sessionwould have revised the Small Business Act to increase prime federal contractingopportunities for small-business concerns.

Thebill died in committee, but certain sections were rolled into the 2017 NationalDefense Authorization Act. There's a strong chance that the parts of theprevious bill that didn't find another vehicle may again be put forth thisyear, the committee source said.

Thereason for the renewed effort is clear, Chabot told Bloomberg BNA in a writtenstatement. "Federal dollars are a limited resource," he said. "Awardingineligible firms federal contract awards means eligible small businesses do notget those contracts."

'WidespreadMisreporting.'

Thereis no evidence of "substantial intentional misrepresentation" among federalagencies, an SBA spokeswoman told Bloomberg BNA in a written statement.Anomalies are more likely caused by human error, she said — an understandableoccurrence, given that thousands of contracting officers enter data aboutcontracts, including contractor size, millions of times per year.

Yet,reports from various agencies "have shown widespread misreporting by procuringagencies, since many contract awards that were reported as having gone to smallfirms have actually been substantially performed by larger companies," said theSBA IG's annual report, issuedlast October, on the most serious "SBA management challenges."

The IGhas used similar language in management challenges reports since at least 2007.The watchdog, over the past decade, requested that SBA make several changes toimprove the accuracy of its goaling and scorecard reports, many of which theagency has made.

The SBAshould focus on modernizing its information systems and improving dataintegrity, acting SBA IG Hannibal "Mike" Ware told Bloomberg BNA in a writtenstatement. That would "greatly enhance the ability of both SBA and contractingofficers to perform their respective responsibilities," he said.

'DeceptivePractice.'

An ASBLinjunction request filed last year is the most direct ongoing attack on theSBA's goaling process. Although a judge with the U.S. District Court for theNorthern District of California dismissed the request in October onjurisdictional grounds, the ASBL has appealed the case to the U.S. Court ofAppeals for the Ninth Circuit.

TheASBL is asking the court to issue an injunction that bars the SBA fromexcluding any prime contract when calculating the value of contract awards. Theinjunction would also prevent the agency from including contracts that wereawarded to businesses that aren't "small" as defined by law and regulation,when calculating the value of prime contracts awarded to small businesses.

The SBAasserted in a press announcement last April that small-business contractsawarded in fiscal 2015 accounted for 25.75 percent of the total for all primecontract awards. However, in that fiscal year, SBA characterized 151 Fortune500 companies as "small businesses," according to the ASBLsuit.

Thesuit contends that the SBA excludes the small-business prime contracting awardnumbers from 27 agencies, including the CIA, the Federal AviationAdministration and the Supreme Court, as well as contracts that are performedoutside the U.S. These excluded contracts make up a significant portion offederal spending, the suit contends, meaning that the figures SBA releasesaren't accurate and reflect a form of "creative accounting."

"Usingthis deceptive practice, the SBA has, for years, been able to boast that the governmenthas attained or exceeded the 23 percent minimum goal," the suit says.

JudgeVince Chhabria didn't address the substance of ASBL's claims in his three-pageopinion Oct. 18. The judge found that Congress, but not the courts, couldmandate the types of changes the ASBL seeks.

"If theSmall Business Administration is giving Congress bad information, then Congresscan do something about it, either in an oversight or legislative capacity,"Chhabria wrote.

Thebaseline facts illustrate that their case has merit, Tiefer and ASBL PresidentLloyd Chapman told Bloomberg BNA.

Thereare gray areas of the law, Chapman said, "but my lawsuit is about policies thatare clearly illegal."

PriorityAttention

The SBAwas created to enforce the Small Business Act of 1953, which was designed inpart to ensure that a reasonable percentage of federal procurement contractswere awarded to small businesses, as well as small enterprises owned by women,minorities, veterans and others through set-aside programs.

TheGovernment Accountability Office (GAO) has urged the SBA for more than a decadeto address flaws it has recognized in the system.

The GAOin a May 2003 reportstudied five large companies that received $1.1 billion in federal contracts,including $460 million designated as "small business awards."

Asignificant cause for the misreporting is that federal regulations generallypermit companies to be considered small businesses over the life of the contract— even if they grow, merge with another company or are acquired by a largebusiness, the GAO found.

'ThereWas Confusion.'

Small-businessgovernment contracting is one of the most important functions of the SBA, theagency spokeswoman said.

Thereis "no evidence" that substantial intentional misrepresentation is occurring,she said. "Instead, the anomalies are more likely human error (thousands ofcontracting officers entering millions of actions each year) orrecertification, i.e., a small business may legitimately win the competition,but may subsequently be acquired during performance," she said in herstatement.

Theagency could not comment on the ASBL suit because it's ongoing, the spokeswomansaid.

Shedeclined to comment on whether SBA anticipates any changes in how it tabulatesits small-business goaling reports under McMahon — or whether the agency mayalter its mission as it pertains to federal contractors more generally.

"Inever thought during my time at SBA that there was any conspiracy," A. JohnShoraka, a former SBA associate administrator for government contracting andbusiness development, told Bloomberg BNA. "There was confusion."

Shoraka,who left the SBA in January after a five-year stint, said the rules aren't asclear as they could be on when companies need to recertify as largerbusinesses. Contractors don't follow them "100 percent of the time," he said.

But thegoaling reports are more reliable now than they've ever been, said Shoraka, nowmanaging director for PilieroMazza Advisory Services. Referring to the reportsissued during his tenure at the SBA, "I think these were the cleanest numbersin the history of these goaling reports," he said. "We worked very hard to getthese numbers clean."

'TheFundamental Question.'

The SBAhas no "sticks" at its disposal — no legal or regulatory remedies — whenagencies admit they've failed to meet their small-business contracting targets,Shoraka said — as happened in 2015, when the Department of Energy said thatjust 5.4 percent of its contracts were awarded to small businesses.

Instead,"when you get a bad report card, we're going to drag you before Congress andcall you out," Shoraka said.

Longtimegovernment contracting attorney Steve Koprince told Bloomberg BNA he isn'tconvinced that data reporting irregularities, even chronic problems, can beattributed to "book-cooking."

However,SBA needs to do a better job pressuring agencies to take their small-businesscontracting responsibilities more seriously, he said.

"It'sdefinitely a challenge for the SBA," Koprince said. "Are they holding agencies'feet to the fire when they report these numbers? That's the fundamentalquestion."

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