Small businesses shortchanged as Feds fail to reach contract goal


Small businesses shortchanged as Feds fail to reach contract goal

By Kent Hoover
The Business Review
July 21, 2008

The federal government failed to meet its goal of awarding 23 percent of its procurement dollars to small businesses, according to preliminary 2007 data.

The official numbers won't be released until August, but it appears small businesses received 22.1 percent of federal contracting dollars in 2007, said Calvin Jenkins, the Small Business Administration's deputy associate administrator for government contracting and business development.

That percentage was down from 2006, when small businesses' share was 22.8 percent, also short of the goal.

More money flowed to small businesses last year, however, because overall federal contracting increased to more than $436 billion.

Hitting the 23 percent goal was harder for agencies last year because they could no longer count contracts awarded to small businesses that were acquired by large businesses.

Until last year, agencies could count these awards as small business contracts for the life of the contract.

In addition, the SBA worked with federal agencies to improve the quality of contracting data.

In the past, billions of dollars were credited to small businesses for contracts that actually went to large businesses.

The SBA and the Office of Federal Procurement Policy removed $4.6 billion of miscoded contracts from the 2005 small business database, and the data scrubbing continued for the 2006 and 2007 goaling reports.

Agencies also were ordered to establish procedures for verifying contracting data and were graded on their efforts. This year, for the first time, they were required to certify the accuracy of their contracting data.

The SBA also asked large businesses to make sure none of their contracts was being counted as a small business contract.

These efforts to get the numbers right are having a "major effect" on agencies' ability to hit their small business goal, Jenkins said. Audit: Miscoding continues

A recent investigation of small business contracts at the Interior Department, found $5.7 million in contracts that were awarded to large businesses but were counted as small business contracts.

Recipients of these contracts included such well-known corporations as The Home Depot, Dell and Weyerhaeuser.

Counting these awards as small business contracts helped the agency achieve its small business goal in 2007.

The inspector general's report blames the errors on data entry mistakes, reliance on incorrect data and the failure to verify a company's size listing in the Central Contractor Registration, an online database of government contractors.

The CCR, for example, still listed subsidiaries of John Deere and Xerox as small businesses on July 14, two weeks after the inspector general's report was released.

"We are working to correct these issues," said Lynn Scarlett, deputy secretary of the Interior. Critic: Mistakes intentional

One Interior Department procurement official told investigators that "contracting officers often click through mindlessly when entering contracts" in the government's procurement data system.

Lloyd Chapman, president of the American Small Business League, doesn't think these mistakes are mindless, however.

"My opinion is they did that intentionally," Chapman said, in order to meet their small business goals.

As evidence, he points to the inspector general's finding that in a few cases contracting officers bypassed a procedure that would have automatically filled a contract's fields with the correct information.

Instead, they made their own determination about a company's size. Why would they do this extra work, Chapman asks, unless they wanted to inflate their small business contracting numbers?

Chapman contends this practice "is obviously not limited" to the Interior Department.

"The intentional diversion of federal small business contract dollars to Fortune 500 firms is a government-wide problem," he said.

The situation is much better, however, than it was five years ago, said Molly Brogan, vice president of the National Small Business Association.

The SBA deserves some credit for reducing the number of miscoded contracts and holding contracting officers more accountable, she said.

"Transparency has certainly increased," Brogan said. "At least they're being more open, honest and candid about what their problems are and where they are, and what their plans are to fix them." Quick info

Fortune 500 goes small

The Interior Department miscoded contracts to these Fortune 500 companies as small business contracts:

The Home Depot Inc. Dell Inc. Deere & Co. Weyerhaeuser Co. Xerox Corp. Waste Management Inc. Sherwin-Williams Co. McGraw-Hill Cos. Starwood Hotels & Resorts




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