Petaluma, Calif. – A provision within President Obama’s Small Business Jobs Act, which is set to pass the House today, has small business groups across the country concerned. Section 1341, contains language that would protect large businesses that intentionally misrepresent themselves as small businesses as a means of illegally receiving federal small business contracts.

Section 1341 states that the Administrator of the Small Business Administration (SBA), “shall promulgate regulations to provide adequate protections to individuals and business concerns from liability under this subsection in cases of unintentional errors, technical malfunctions, and other similar situations.” (http://finance.senate.gov/legislation/details/?id=da799068-5056-a032-5229-92cebbd2b7a0)  

The American Small Business League (ASBL) believes that this section may provide a safety net under which large prime contractors could be absolved of fraudulent misrepresentation under the guise of, “unintentional errors, technical malfunctions, and other similar situations.”

Since 2003, there have been over a dozen federal investigations, which have found Fortune 500 firms and thousands of large companies around the world as the actual recipients of federal small business contracts. The SBA’s Inspector General has listed this problem as the number one management challenge facing the agency for the past five consecutive years and referred to this problem as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (https://www.asbl.com/documentlibrary.html)  

Report 5-16 from the SBA Inspector General referred to these misrepresentations as, “false certifications” and “improper certifications.” Other federal investigations described the blatant fraud as “vendor deception.” (https://www.asbl.com/documents/05-16.pdf)

Concerns have been raised that this provision of the bill was included specifically to protect large firms that have misrepresented themselves as small in order to prevent them from being prosecuted under section 16(d) of the Small Business Act. Section 16(d) prescribes penalties of up to $500,000 and up to 10 years in prison for firms that misrepresent themselves as small businesses in order to illegally receive federal small business contracts.

 “This is really unbelievable. There have been over a dozen investigations showing that large businesses are committing felony contracting fraud, President Obama has promised to stop it, and now he has included a provision in the bill that will essentially legalize federal contracting fraud,” ASBL President Lloyd Chapman said. “The language in this bill will create a loophole where large firms can misrepresent themselves as small without any consequences.”