Time For Congress to end the charade at the SBA

Every summer the Small Business Administration comes out and announces the federal government has come very close to or actually exceeded the 23 percent small business contracting goal required by law.

This year the SBA stuck with their tried and true tradition of releasing the information late on a Friday afternoon to reduce media scrutiny.  On August 1, SBA Administrator Maria Contreras-Sweet claimed the federal government had awarded 23.39 percent of all federal contracts to small businesses.

{mosads}As it has been for more than 15 years, the SBA’s data on the volume and percentage of contracts to small businesses is completely false and dramatically misrepresents the true volume of federal contracts awarded to legitimate small businesses.

The SBA significantly inflates the actual volume and percentage of federal contracts awarded to small businesses in two main ways.

First, as opposed to using the total federal acquisition budget as required by law, the SBA and GSA have manufactured the term, “small business eligible dollars.” The policy of “small business eligible dollars” has no basis in law and is in fact completely contrary to the Small Business Act that stipulates that a minimum of 23 percent of the total value of all federal contracts be awarded to small businesses.

The second tactic the SBA uses to misrepresent the true volume and percentage of federal contracts awarded to small businesses is to include billions of dollars in federal contract awards to Fortune 500 firms, their subsidiaries and thousands of other clearly large businesses including foreign owned corporate giants. No federal law allows for Fortune 500 firms or any large business to legally be considered a small business.

The Small Business Act defines a small business as being “independently owned” and the largest current small business size standard based on the number of employees is 1500. This would clearly exclude any Fortune 500 firms or their subsidiaries.

NBC, CBS, ABC, CNN, CNBC, Fox News and MSNBC have all reported on the diversion of federal small business contracts to corporate giants.

Anytime federal investigations or investigative reports in the media uncover the SBA’s inclusion of billions of dollars in contracts to Fortune 500 firms in their small business data, the SBA responds with a variety of very creative and implausible excuses.

In 2003 when an investigation by the GAO based on information I provided uncovered thousands of large businesses were receiving federal small business contracts, the SBA claimed it was the result of “computer glitches” and “data entry errors.” In recent years the SBA has added “anomalies” and “simple human error” to their list of excuses.

Actual computer glitches, data entry errors, simple human error and all anomalies would have a random pattern of distribution like flipping a coin, heads or tails. In federal contracting the two choices are big business or small business. Any true random errors in the reporting of the size status of recipients of federal contracts would obviously have a random pattern of distribution. For example, for every random error that reported a contract to a large business as a small business contract there would be an equal number of errors that miscoded a contract to a small business as a large business contract. We do not see that pattern in federal contracting data on the volume of awards to small businesses. All the supposed anomalies and miscoding always report contracts that were intended to go to small businesses to a large business.

Another SBA excuse for including large businesses in their small business data is small firms outgrowing their size status and large firms acquiring small businesses. Both of these excuses have no basis in the law. Under federal law, a small business ceases to legally be considered small as soon as it is acquired by a large business. 

The SBA, GSA and other agencies have adopted “policies” that allow this, but they are in direct contradiction to the law.

A recent legal opinion by Professor Charles Tiefer, one of the nation’s leading experts on federal contracting law, found no legal justification for the inclusion of any large business in federal small business contracting data. His legal opinion also supports the premise that small businesses should receive 23% of all federal contracts and not the “small business eligible dollars” the SBA and GSA have fabricated.

The SBA’s own Office of Inspector General has named the diversion of federal small business contracts to large businesses as the number one problems at the SBA for a decade.

Even President Obama acknowledged the magnitude of the abuses at the SBA when he released the statement, “It is time to end the diversion of federal small business contracts to corporate giants.”

According to the latest data from the U.S. Census Bureau small businesses are responsible for over 90% of the net new jobs, over 50 percent of the private sector work force and over 50 percent of the GDP. The Small Business Act of 1953 was the most efficient and effective economic stimulus program in history.

What better way to spend the taxpayers money than to reinvest that money with the 28 million small business where most Americans are employed?

If the actual federal acquisition budget number were used and if only legitimate small businesses were included, I believe American small businesses are currently receiving less than 5 percent of federal contracts and not the 23.39 percent claimed by the SBA.

So I say it’s time for Congress to end the charade and the undeniable fact the SBA has consistently falsified and fabricated the true percentage of federal contracts awarded to small businesses.

I propose an extensive GAO investigation into the SBA to uncover the obvious misrepresentations about the SBA’s “miscoding”, “anomalies” and “small business eligible dollars.”

It’s time for Congress to stop the SBA, the Pentagon and all federal agencies from cheating the American people out the volume of federal contracts and subcontracts they should be receiving by law.

It’s time for President Obama, every member of Congress and every federal employee to understand cheating the middle class year after year is the pinnacle of unpatriotic conduct and causes irreparable economic harm to the 28 million small businesses that are the undeniable backbone of our nation’s economy.

Chapman is president and founder of the American Small Business League.