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In Florida, 'small businesses' aren't all small

Small businesses are supposed to get a substantial percent of government contracts. But not all contract holders are really that small.

By Jim Wyss
Miami Hearld
October 10, 2009

What do Dell Computer, General Electric and Boeing have in common? These massive corporations were all counted as ``small businesses'' doing work in Florida last year.

The three firms -- along with a dozen other billion-dollar companies -- soaked up at least $76 million in federal contracts that were recorded as going to small businesses during fiscal year 2008, according to government data.

The issue of how federal dollars are spent is critical in Florida, where 90 percent of all businesses have fewer than 20 employees and government contracts represent a valuable lifeline amid a tanking economy.

While the federal government is obliged to put 23 percent of all direct, or prime, contracts in the hands of small firms, it has missed that mark for the past three years.

``Call me crazy, but I just don't think Fortune 500 companies should be counted as small-business contracts,'' said Lloyd Chapman, president of the American Small Business League. ``I just can't believe this is still going on.''

The Small Business Administration recently reported that, nationwide, small firms received a record $93.2 billion in prime contracts in 2008. While that was $10 billion more than the previous year, it only represented 21.5 percent of all deals.

In Florida, more than 12,000 companies won small-business contracts worth $4.8 billion, according to the FPDS-NG, the government's procurement database.

But a Miami Herald analysis of more than 88,400 contracts performed in the state suggests that the numbers are bloated by companies that either don't belong on the list or defy all reasonable definitions of what makes a small firm.

Among the top 20 small business contractors in Florida, seven had revenue of $100 million or more, and one boasts annual revenue of $1 billion. In addition, nine of the top 20 firms have more than 100 workers and three have more than 1,000 employees.

Deeper in the data, massive public companies such as Northrop Grumman, Honeywell and Raytheon were all counted as small firms doing business in the state.

Some of those corporations are in the database under rules that grandfather them in, said Joe Jordan, the SBA's associate administrator for government contracting and business development.

Others are there by mistake.

As dozens of agencies input more than eight million contracts into the government database every year, errors are made, Jordan said. While the SBA tries to weed out mistakes, it simply does not have the manpower to catch them all. ``I can tell you this data is as clean as it has ever been,'' he said. ``But it's not 100 percent free of errors.''

It's not that large companies are stealing contracts from mom-and-pop shops, Jordan said, but that some U.S. government agencies are overstating their commitment to small business.

Chapman disagrees. Recording corporate goliaths as small firms means fewer contracts are going to the genuinely small businesses that need them, he said.

Data-entry errors are only part of the problem. Complex government rules also skew the figures.

Under federal guidelines, companies that start small and grow large -- as well as small companies that are acquired by larger firms -- can maintain the small-business status of their long-term contracts for up to five years.

For example, one of Florida's top 20 small-business contractors is engineering company Morgan Research Corp., of Huntsville, Ala. The firm was bought in 2006 by Virginia-based consulting firm Stanley. With 3,600 employees and annual revenue of $604 million, Stanley is large.

Even so, under federal rules, $36.7 million in Florida contracts that went to Morgan in 2008 were considered small-business deals even though that money is lining the pockets of its corporate parent.

In addition, an entire class of companies, called Alaska Native Corporations, or ANCs, are counted as small disadvantaged businesses regardless of the size of their parent company. ANCs were created by Congress in 1971 to settle land and financial claims made by Alaskan Natives. Since then, they have evolved into formidable government contractors.

The ANC issue looms large in Florida. Of the top 10 small contractors doing business in the state, four were ANCs. Those four companies alone won $265 million in contracts, or about 6 percent of the total small business take in Florida. If it were not for their special status, none of them would qualify as small.

For example, the top vendor in that category, ASRC Aerospace, is a subsidiary of the Arctic Slope Regional Corp., which is owned by and represents the interests of some 10,000 Iñupiaq Alaskan native shareholders. But ASRC's eight subsidiaries also give it a national footprint and $1 billion in revenue, according to its website.

The multiple loopholes, incomplete government data and the challenge of prying information out of privately held companies make the problem difficult to quantify.

The American Small Business League estimates more than $100 billion a year in small-business contracts goes to Fortune 500 companies and others that are clearly not small.

Raul Espinosa, founder of the Fairness in Procurement Alliance, said his St. Augustine-based group has identified 47 corporations with at least $1 billion in annual revenue that won small-business contracts nationally.

``There is a dysfunctional bureaucratic culture that abuses the statutory rights of small businesses and restricts their ability to compete,'' Espinosa said. ``We are formally asking the SBA administrator to withdraw the numbers and have the list completely scrubbed and reissue it again.''

Even successful small businesses can find the process challenging.

Structured Cabling Solutions, a Hialeah company that designs and installs data and communications networks, spent about nine months compiling the documents required to become a government contractor.

Among its 32 employees are two estimators and three project coordinators who focus on drumming up new clients. But even with an experienced staff, the process of bidding on federal contracts is so time-consuming the firm can only compete for a handful a year, said Alain Gonzalez, the estimating manager.

The company only pursues Florida deals but often finds itself up against out-of-state firms with a national footprint, he said.

``The bigger companies have a bigger bite'' of government contracts, Gonzalez said, because they can afford to play the numbers game. ``The more bids you turn in at the end of the day, the more possibilities you will have.''

The company recently won its first contract -- a deal with the National Park Service to provide data and electricity cabling in the Everglades.

The contracting issues are not new. The Government Accountability Office and the SBA have produced more than a dozen reports since 2000 highlighting problems.

``Many contract awards recorded as going to small firms have actually been performed by larger companies,'' the SBA Office of Inspector General wrote in 2008. ``While some contractors may misrepresent or erroneously calculate their size, most incorrect reporting results from errors made by government contracting personnel.''

A 2005 story in The Miami Herald found that more than half of the top 20 small-business contractors in the state exceeded the SBA's basic definition of a small business: one with 500 or fewer employees.

The issue took on renewed prominence during the presidential campaign when then-candidate Barack Obama wrote on his website: ``It is time to end the diversion of federal small-business contracts to corporate giants.''

Jordan, of the SBA, said the new administration is tackling the problem. The agency is ratcheting up efforts to educate procurement officers to try to stop problems before they occur and is also trying to make small businesses aware of contracting opportunities.

``We need to make sure that both sides are trained and educated and understand the needs of the other side,'' he said. ``I will not be satisfied until the federal government achieves its small business goals.''

The House of Representatives is hoping to close some of the loopholes by making it illegal for publicly traded companies, and any firm with more than 50 percent foreign ownership, to be counted as a small business for the purposes of meeting federal agency contracting goals.

The National Association of Small Business Contractors has its own solution: Raise the federal small-business target from 23 percent to 30 percent of all federal contracts.

Ann Fierro is the CEO of Omega Technology Solutions, a Fort Lauderdale company that makes auditing software for hospitals.

Fierro made a failed bid for a government contract two years ago and is cynical about the government's commitment to help small companies like hers.

Asked about the proposal to raise the percentage of contracts that go to small firms, she laughed. ``The government is not even coming close to the goal now,'' she said.

``So I don't know how that will make a difference.''

Source:  http://www.miamiherald.com/569/story/1276867.html



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