PETALUMA, Calif., April 28, 2005-- The American Small Business League welcomed a recent set of changes in Federal small business contracting procedures as long overdue, but warned that significant problems remain.

The ASBL - the only national organization defending the interests of small businesses in the Federal government's $60-plus billion small business contracting program - has advocated for these and other changes since 2002. The Small Business Act of 1953 directs that at least 23 percent of federal government prime contracts go to small business. But a host of abuses and loopholes allow large companies to get many of these contracts. The Defense Department alone awarded more than $47 billion in "small business" contracts to huge corporations between 1998 and 2003, according to a 2004 report by the Center for Public Integrity.

The new changes attempt to close one of the many loopholes that allow this to happen. On April 22, the Small Business Administration and several Federal agencies announced they have revamped the small business designation process in the Central Contractor Registration (CCR) database. Federal agencies rely on the CCR database to determine whether a contractor qualifies as a small business. The SBA itself will now mark a company's record in CCR to indicate whether a business is SBA-certified small disadvantaged, 8(a)-certified or HUBZone-certified. Previously, businesses could self-certify. ASBL has found hundreds of large companies listed in the small business database, and has forced the SBA to remove nearly 600 of them.

"We welcome these changes as a step in the right direction," said Lloyd Chapman, president of the ASBL. "We are gratified that our efforts on behalf of American small business continue to produce results. However, these programs will remain rife with abuse unless Congress and the SBA do far more to clean them up."

The SBA changes fell short of requiring vendors in the CCR database to disclose all pertinent information about their company, including the capabilities narrative and their primary North American Industry Classification (NAIC) code, two clear indicators of whether a vendor is blatantly misrepresenting itself as a small business and the most common sources of past abuse.

The SBA also failed to include a visible warning on the CCR database of penalties against companies that fraudulently misrepresent themselves as a small business. Penalties include fines up to $500,000, 10 years in prison, the cancellation of all existing government contracts and temporary disqualification from future government business activities regulated under the Small Business Act.

"If the SBA truly wanted to root-out fraud and abuse in the awarding of small business contracts, it would require vendors to disclose more information about their business--specifically, the capabilities narrative and NAIC code," said Chapman. "SBA officials have clearly bowed to pressure from other groups, instead of following the recommendations made by the SBA's own Office of Inspector General. America's small business owners are losing out because of the SBA's inaction."

In May 2003, Congressional hearings and a GAO report both highlighted problems with the SBA's database. "Why has it taken the SBA two years to even begin to address this problem?" Mr. Chapman asked.

While the SBA changes, if properly implemented, could help reduce one source of small business contracting abuses - false self-certification - many other problems remain, including:

• The SBA's size standards are misguided. In the United States today, 98 percent of all firms have fewer than 100 employees. Until 1986 the SBA defined a "non-manufacturer" (reseller) small business as one with fewer than 100 employees. In 1986, the SBA changed the definition to allow up to 500 employees.
• The SBA and Justice Department have failed to prosecute fraud and misrepresentation. Misrepresenting a firm as a small business to illegally received federal contracts is a felony with penalties of up to ten years in prison. Despite widespread documentation of abuses, no companies have been prosecuted under this law.
• The SBA has flouted the will of Congress. Congress passed legislation mandating all federal acquisitions between $2,500 and $100,000 to be automatically set-aside for small business. The SBA and the FAR Council essentially repealed this valuable piece of legislation by exempting all federal acquisitions on GSA schedule.

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