SMB Contracting: A Litmus Test for President Obama


SMB Contracting: A Litmus Test for President Obama

By Keith Girard
August 27, 2009

It was no secret in Washington that the Bush administration had little regard for the Small Business Administration. During his two terms in office, the agency’s budget and staffing were cut every year, opening the door to waste and fraud and forcing many programs to operate on a shoestring.

The Republican administration’s big business bias was all too apparent in the way the SBA dragged its feet when it came to cleaning up the awarding of federal contracts to small businesses, long a problematic program in which billions of dollars annually always seem to end up in the pockets of Fortune 500 companies.

The Obama administration, of course, promised sweeping change. The president even wooed small businesses during the campaign and picked an experienced administrator to lead the agency.

But the real litmus test of the administration’s commitment to change — and to small businesses — will be how effectively it deals with long-standing contracting abuses. The new Obama SBA went through its first rite of passage on the issue last Friday when it released its annual “score card” on small business contract awards.

Congress has set a goal requiring the government to award 23 percent of all federal contracts to small entrepreneurial firms. The idea is to give them a leg up, so one day they can become large firms and major employers.

In its press release, the agency claimed that small businesses had received a record $93.3 billion in federal prime contracts during the 2008 fiscal year, up almost $10 billion from 2007. Of that amount, almost $3 billion went to disadvantaged businesses, women-owned businesses, and businesses owned by service-disabled veterans. That’s up about $1 billion over last year.

While the numbers are impressive, the agency failed to meet its congressionally mandated goal for the fifth year in a row. What’s more, this year is worse than last. Just over 21.5 percent of all eligible contract dollars went to small firms, compared with 22 percent in FY 2007.

Eagle Eye Publishers, a Washington area firm that tracks federal contracting, puts the actual FY 2008 figure closer to 19 percent once a wide range of “exclusions” (contract awards not counted when figuring the goal) are added back in. Exclusions include contracts paid for from funds other than congressional appropriations, such as user fees, and contracts awarded overseas.

“No amount of positive spin by the Small Business Administration can make up for the over $30 billion lost in FY 2008 due to the federal government's failure to meet small business contracting requirements,” said Cris Young, president of the National Association of Small Business Contractors, in a statement.

“This is not a single-year accident. The federal government has failed to meet its small business contracting requirements for the past five years,” he added. “We have called for fair access to contracts for years. Instead we get promises and press releases.”

The SBA reported, however, that it exceeded its contracting goal for disadvantaged small businesses. Government awards topped 6.6 percent, compared with a 5 percent goal. But it still missed goals for women-owned firms, service-disabled vets, and HUBZone firms.

On even closer examination, critics note that major corporations still seem to have their hand in the till, largely winning awards through smaller affiliates.

“Of the 10 largest recipients of federal small business contracts, eight of the firms were clearly large businesses and received 85 percent of the total contract dollars,” said Lloyd Chapman, president and founder of the American Small Business League. “Of the top 100 recipients, 64 percent of the contract dollars went to large businesses.”

Chapman has been a leading critic of the SBA’s contracting oversight, and during the presidential campaign his organization endorsed Obama, hoping for change. He says the SBA has been fabricating and inflating data on small business contracting awards for nine years, and he fears it will be business as usual under the new administration.

Chapman contends that Textron was the single largest recipient of federal small business contracts last year, and it’s a Fortune 500 firm with 43,000 employees and over $14 billion in annual revenue. He says Textron raked in $775.8 million in contracts through their AAI division.

Other firms on the receiving end of small business contracts include: British Aerospace (BAE), Rolls-Royce, General Electric, Xerox, Office Depot, Staples, Dell Computer, AT&T, Hewlett-Packard, 3M Corporation, General Dynamics, Booz Allen Hamilton, Northrop Grumman, L-3 Communications, GTSI, Raytheon, Boeing, and Lockheed Martin, he says.

To address the contracting shortfall, Commerce Secretary Gary Locke and SBA Administrator Karen Mills have announced a new government-wide plan. Federal agency procurement officials will hold or participate in more than 200 events over the next 90 days to “share information on government contracting opportunities” with small firms.

“President Obama has made a commitment to ensuring that small businesses have greater access to federal contracting opportunities and it is a commitment shared across this administration,” Mills said in a statement.

“We have already begun taking aggressive steps to connect small businesses with contracting opportunities, as well as increase our outreach to federal agency procurement officers to make sure they get the information and tools they need to help them connect with these good, innovative, small companies,” she added.

But Chapman notes that during the campaign Obama promised to restore the SBA budget, restore the SBA Administrator to a cabinet-level position, and implement a long-delayed 5 percent woman-owned small business contracting goal. “Not one of these campaign promises has been honored,” he says.

The jury is still out on the Obama administration’s true commitment to small businesses. Despite the press releases, the posturing, and the promise of procurement fairs, the real litmus test for reform will be the administration’s commitment to cleaning up the contracting mess. It has been a sore spot for far too long. Much of what went on during FY 2008 was not on this administration’s watch. But it won’t have that excuse next year.




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