Group Sues SBA, Says Government ‘Defrauded Small Businesses’

Just a week after the Small Business Administration celebrated record-breaking contract awards to small business owners eligible for government set-asides, a longtime critic filed suit in federal court for an injunction to force SBA to halt some of the practices used in measuring its success.

The Petaluma, Calif.-based American Small Business League, in an injunction addressed to Administrator Marie Contreras-Sweet filed in Federal District Court in San Francisco, argued that the SBA’s “illegal policies” have “defrauded small businesses and small businesses owned by women, minorities and disabled veterans out of hundreds of billions of dollars in government contracts.”

It quotes the Small Business Act’s language noting that “the governmentwide goal for participation by small business concerns shall be established at not less than 23 percent of the total value of all prime contract awards for each fiscal year." And within that category, the goal states 5 percent for women-owned small businesses, 5 percent for minority-owned firms, and 3 percent for disabled veterans.

But the SBA, the group’s argument goes, “has created a policy they call the ‘exclusionary rule’ and ‘small business eligible dollars’ that uses a significantly lower federal acquisition budget number to calculate the percentage of contracts awarded to all categories of small businesses.”

Among the types of contracts defined as "excluded," according to the brief, are those involving contracts performed outside of the United States; acquisitions by agencies on behalf of foreign governments, entities or international organizations; and all contracts involving the following agencies: the Federal Deposit Insurance Corp., the U.S. Postal Service, the Bureau of Engraving And Printing, the U.S. Mint, the Office of the Comptroller Of The Currency, the Office Of Thrift Supervision, the Transportation Security Administration, the Federal Aviation Administration, the Tennessee Valley Authority, the Administrative Office of the U.S. Courts, the Architect of the Capitol, Bankruptcy Courts, the Central Intelligence Agency, the Congressional Budget Office, the Court Services and Offender Supervision Agency, the Pretrial Services Agency, the Federal Judicial Center, the Overseas Private Investment Corp., the Supreme Court, TRICARE, and the Centers for Medicare & Medicaid Services.

“The SBA cannot claim it has met its small business participation goals unless a significant portion of the total contracts are ignored, some contracts are declared exempt, despite the act's crystal clear use of the phrase all prime contracts,” the injunction concludes.

"I am confident,” said league President Lloyd Chapman, “the court will find the SBA's policies violate federal law and the SBA has blatantly falsified federal small business contracting data and cheated small businesses out of billions of dollars."

An SBA spokesman told Government Executive, “We don't have any comment and aren't aware of any complaint.”