U.S. government's small business procurement goal achievement is under attack: Are the criticisms valid? _x000D_


U.S. government's small business procurement goal achievement is under attack: Are the criticisms valid?

By Alice Lipowicz
Set-Aside Alert
September 11, 2015

The Obama Administration recently announcedit had reached 24.99% in small business procurement, exceeding the government's23% goal for the second year in a row. But instead of cheers, they got jeers.

      The SmallBusiness Administration's celebratory news was met with a stunningly negativeresponse in some quarters.

      "The SBA isrobbing small businesses," Rep. Steve Chabot, R-OH, who chairs the House SmallBusiness Committee, said in his official statement in response to theannouncement. "The reason Congress asks for these numbers is so we can usethem, not so that the Administration can pat itself on the back once a year."

      Chabot, whoobjects to the SBA's accounting methods, was not the only critic this year.While conservative gadfly Lloyd Chapman has been accusing the SBA of "fraud" inits small business goal achievement for several years, this year a consumerwatchdog group, Public Citizen, also jumped into the fray, citing several ofChapman's allegations almost verbatim.

      "Accountingtricks create false impression that small businesses are getting their share offederal procurement money," Public Citizen claimed in its May 6 report (http://goo.gl/FVjjcM).

      Perhaps itshould have been expected that once the small business goals were met in fiscal2013 and in fiscal 2014, after years of effort, the tables turned. Suddenly,the rules surrounding the goals are being harshly questioned.

      But arethese valid criticisms, sour grapes, or just sourness? And even if alleged"accounting tricks" are a factor, are the problems significant enough to affectthe goal achievement? Set-Aside Alert is looking for answers.

Watchdog allegations

      To start, weexamined the main allegations contained in Public Citizen's recent report.Their claim is that the SBA is wrongly counting some large businesses as small.The government's success in small business contracting "relies on methodologiesthat present a false impression," the Public Citizen report claimed. "Forexample, the list of contracts the government counted toward meeting its smallbusiness contracting goals in 2013 included some held by the largest companieswith which the government does business."

      Seven of the10 largest contractors received at least one contract that the SBA countedtoward small business goals that year, the report said. It named LockheedMartin Corp., Raytheon Co., General Dynamics Corp., Northrop Grumman Corp. andseveral others as large contractors with small business awards counted towardthe government's goals. The report did not show the value of those awards.

Set-Aside Alert's research

      Set-AsideAlert decided to compile our own list--not just of the 10 largest--but ofthe 100 largest federal contractors in fiscal 2014 and their small businessawards, if any.

      Our goal wasto independently estimate the value of the small business awards going to the100 largest contractors, to see if it is large enough to affect goalachievement. Our secondary goal was to further examine whether Public Citizen'sallegations were valid.

      Of those top100 contractors, 57 had small business contract actions in fiscal 2014(presumed to have been reported for small business goal achievement). Thosesmall business awards totaled $289 million. That included $293 million in 45awards minus $4 million in 12 negative awards (values below zero).

      At the sametime, those top 100 contractors received $236 billion in contract awards infiscal 2014. Their small business awards totaled about 1/10 of 1%.

      In thecontext of small business contracting, the $289 million was less than a thirdof 1% of all small business contract value and 7/100ths of 1% of total eligiblecontract value available to small firms.

      Based on Set-AsideAlert's review, there was no indication that the top 100 contractors infiscal 2014 were receiving small business awards at a level that would havematerially affected small business goal achievement.

Public Citizen's response

      When weshared those findings with Public Citizen, Taylor Lincoln, author of the study,said while it's clear some awards to large businesses are being included inSBA's small business goal achievement,total dollars involved might be low.

      "It warrantsfurther research," Lincoln told Set-Aside Alert. "It is possible thatthe totals (of large businesses receiving small business awards) do notmaterially affect the goals," he said.

      PublicCitizen also cited the SBA inspector general's 2014 finding of $400 million in"ineligible" 8(a) and HUBZone set-aside contracts. However, the IG previouslytold Set-Aside Alert that while the firms were ineligible under thoseset-aside programs they still may have been eligible for credit as smallbusinesses.

More research details

      Set-AsideAlert's list of the top 100 contractors with small business actions hadthese top 10:

  • Lockheed: $2 million (15 actions)
  • Boeing: $-41,000 net (33 actions)
  • General Dynamics: $2.6 million (43 actions)
  • Raytheon: $2.6 million (56 actions)
  • Northrop: $48,000 (6 actions)
  • McKesson: $554,000 (32 actions)
  • United Tech: $442,000 (42 actions)
  • L-3: $8.2 million (39 actions)
  • BAE Systems: $17,000 (9 actions)
  • Huntington Ingalls: $23 million (56 actions)

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