'Federal agencies can fill their information technology needs and get credit toward their small business contracting goals by ordering through ASAP Software, a Buffalo Grove, Ill.-based company that posted $83 million in sales to the U.S. government in 2001.

ASAP Software is designated as a small business on the General Services Administration schedule, a streamlined contracting vehicle that enables agencies to purchase goods and services from listed companies without having to seek bids.

But ASAP Software is not what Congress had in mind when it directed the federal government to award 23 percent of its contracting dollars to small businesses. The company is owned by office products giant Buhrmann NV, a Dutch corporation with 26,000 employees and more than $10 billion in annual sales.

A new General Accounting Office study found that many large businesses besides ASAP Software are receiving federal contracts designated for small businesses. More than 5,000 companies who received nearly $14 billion in contracts reported as going to small businesses in fiscal 2001 also received $60 billion in contracts as large businesses, GAO found.

To find out why this occurred, GAO took a close look at five large companies that received a total of $1.1 billion in contracts -- $460 million of which were counted as small business contracts.

The primary reason why these deals were deemed to be small business contracts is because federal regulations allow a company that is certified as small when it is first awarded a contract to keep that designation for the life of a contract -- up to 20 years in the case of GSA schedule contracts and other increasingly popular multiple-award contracting programs.

As far as federal agencies are concerned, the company remains a small business even if it outgrows that status or is acquired by a giant corporation like Buhrmann.

GAO also found cases where agencies erroneously reported that contracts went to small businesses because the companies' size was incorrectly listed in contracting databases.

The GAO report confirmed what members of Congress' small business committees had suspected: The federal government's claim that 22.8 percent of its contracts went to small businesses in fiscal 2001 is grossly inflated, and hundreds of large businesses are receiving contracts that should be going to small businesses.

"This is yet another example of how the federal procurement system is fraught with inequities," says Rep. Nydia Velazquez of New York, the ranking Democrat on the House Small Business Committee. "As if contract bundling, poor oversight and lack of accountability weren't big enough obstacles, now small businesses are losing out on even more contracts intended for them because they are going to large businesses instead."

Annual size certification proposed

The Bush administration is taking steps to address the problem.
The GSA in March began requiring companies who receive multiple-award contracts to recertify their size before the government exercises options to extend their contracts, which typically occurs every five years.

"I personally think that's too long to wait," says Angela Styles, administrator of the Office of Federal Procurement Policy.

Styles' office in February directed GSA, the Department of Commerce, NASA and the National Institutes of Health to develop a timetable for small businesses with government-wide acquisition contracts -- another popular vehicle for obtaining sizable work orders over many years -- to begin recertifying their size status every year.

In addition, the Small Business Administration issued a proposed regulation April 25 that would require annual size recertifications from small businesses who receive multiple-award contracts. Agencies would publish lists of these recertification requests, which would be subject to challenges by interested parties.

Styles, however, says her office has heard from many small contractors who fear a one-year certification period is not long enough to take into account fluctuations in business size. The SBA is accepting comments on its proposed regulation through June 24.

Bad data, lax enforcement cited

Critics, however, fear these regulatory actions will not be sufficient to ensure that small businesses receive their fair share of federal contracts.
Sen. Olympia Snowe, R-Maine, chair of the Senate Small Business and Entrepreneurship Committee, is particularly concerned about faulty government contracting data.

"If we cannot rely on the Federal Procurement Data System, we have little hope of enforcing or achieving the 23 percent contracting goal Congress has promised the small business community," Snowe says.

Lloyd Chapman, president of the Novato, Calif.-based Microcomputer Industry Suppliers Association, says dozens of large companies "blatantly misrepresented" their size on the SBA's Pro-Net database of small federal contractors, but no company has been penalized in the past 15 years for these misrepresentations.

The SBA says it delisted more than 600 companies from Pro-Net over the past six months because they did not qualify as small businesses.
Kenneth Robinson, owner and CEO of Leesburg, Va.-based Kenrob and Associates, says new regulations will not be effective unless the administration takes "much stronger measures" to force both procurement officers and large businesses to comply with contracting laws.

Robinson's opinion is based on 20 years of experience running an information technology business serving the federal market.