Back in August, theSmall Business Administration (SBA) announced that it would receive public commentaryvia the Federal Register website on a proposed new policy thatwould allow large enterprises that pose as small businesses in order to defraudthe government into awarding them with federal contracts usually awarded tosmall businesses to come forward and still avoid penalties.

The "Safe Harbor from Fraud Penalties" policy may save large companies thatclaim they "acted in good faith" from paying huge fines, but it could cause smallbusinesses to lose out on contracts worth billions of dollars. The problem oflarge businesses winning small-business contracts has been known for more thana decade, but until recently not much has been done to rectify the situation.

A survey given by the AmericanSmall Business League (ASBL) among more than 2,000 U.S. Chambers of Commercereported an "overwhelming opposition" to the proposed policy. TheChambers represented all 50 states, and upon questioning, most were appalledthat the SBA would propose a policy that removed the stiff penalties from largecorporations that committed such fraud.

Section16 of the Small Business Act states:

"Whoever misrepresents the status of any concern or person as a 'smallbusiness concern,' a 'qualified HUBZone small business concern,' a 'smallbusiness concern owned and controlled by socially and economicallydisadvantaged individuals' or a 'small business concern[s] owned and controlledby women,' in order to obtain for oneself or another any—(A) prime contract tobe awarded pursuant to section 9, 15, or 31; (B) subcontract to be awardedpursuant to section 8(a); (C) subcontract that is to be included as part of allof a goal contained in subcontracting Plan required pursuant to section 8(d);or (D) prime or subcontract to be awarded as a result, or in furtherance, ofany other provision of Federal law that specifically references section 8(d)for a definition of program eligibility, shall be subject to the penalities andremedies described in paragraph (2)."

Those penalties include a fine of up to $500,000, 10 years of prison time,or both.

The proposed Safe Harbor policy would overlook all such penalties as long asthe fraudulent company says that it "acted in good faith."

This month, the public comments were concluded, and it has been reportedthat more than 90 percent of the comments submitted were in opposition.According to a release onSupply&DemandChain Executive, "the SBA received only twocomments that favored the new policy and both of those were from law firms thatrepresent large businesses."

The release also quotes President Obama as stating:

"It is time to end the diversion of federal small business contracts tocorporate giants."

The SBA has not given a statement on what it will do now that the public hasdeclared its discontent with the proposed Safe Harbor policy.

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