House Democrats blast small-business contracting efforts

The Bush administration failed for the fifth year in a row to meet congressional goals for contracting with small- and minority-owned businesses, raising concerns that those companies will be shut out of Gulf Coast reconstruction work, House Democrats said Thursday.

The administration received a grade of "D" for attempts to contract with small, disadvantaged and women-owned businesses in 2004, according to a report released by Democrats on the House Small Business Committee. The failure to meet contracting goals cost small businesses $1.6 billion in lost revenue, according to the Democrats' report.

"For an administration that lectures our country about the important role that small businesses play in our economy, they're coming up short," said Rep. Nydia Velázquez, D-N.Y., ranking member of the House Small Business Committee.

The contracting goals were established by Congress. According to the goals, 23 percent of all federal contracts should go to small businesses, 5 percent to disadvantaged business, 5 percent to women-owned businesses and 3 percent to companies that are classified under the Historically Underutilized Business Zones program (HUBZone).

According to the report, governmentwide contracting with small businesses was 22.36 percent in 2004, the lowest in five years. Disadvantaged businesses received 3.78 percent of government contracts, women-owned businesses 3.11 percent and HUBZone businesses 3 percent, the Democrats said.

The missed goals cost disadvantaged businesses $3.6 billion, women-owned businesses $5.5 billion and HUBZone businesses $3.9 billion, the report stated.

The Small Business Administration, however, issued a report in August stating that agencies awarded 23.1 percent of contracts in 2004 to small businesses, which exceeded the statutory goal. Velázquez claimed SBA improperly categorizes some larger companies as small businesses.

The committee Democrats gave five agencies that do three-quarters of all government contracting subpar or failing grades. Those agencies are the departments of Defense, Energy and Education, the Environmental Protection Agency and the U.S. Agency for International Development.

Defense and EPA received "D" grades while Energy, Education and USAID got failing grades. The Office of Personnel Management and NASA also received "F" grades.

No agencies received an "A" but the departments of Homeland Security, Interior, Transportation and Agriculture received a "B" or "B-." DHS showed the single greatest improvement, going from an "F" in 2003 to a "B" in 2004.

Velázquez said small, disadvantaged and women-owned businesses are having a difficult time getting contracts to help rebuild the Gulf Coast.

The Federal Emergency Management Agency recently announced a revised contracting strategy for the region. Under a two-pronged approach, FEMA plans to award contracts to small businesses, including those from the affected region.

"The dual-track competitive bidding strategy will place a priority on local and small disadvantaged businesses for Gulf Region recovery work as well as on the use of local and small businesses as subcontractors for national open competition contracts," the agency said.

Homeland Security Secretary Michael Chertoff told Congress during a hearing Wednesday that the department is compiling weekly reports to show that contracts are being given to local businesses in the Gulf.

"As we re-bid . . . we're going to be particularly careful to make sure we are seeking out and using existing programs . . . for minority firms, as well as pushing as much of what we can push down to local firms, so that we use the process of rebuilding as a way of jump-starting the local economy," Chertoff told a special House committee investigating the government's response to Hurricane Katrina.

Velázquez said committee Democrats will introduce legislation -- the "Requiring and Ensuring (Small) Businesses in Leading Development (REBUILD) Act" -- that will require federal agencies to give preference in contracting to small businesses in the Gulf Coast region.

"We are demanding that we provide a level playing field and a fair shot to help small businesses do what they do best, and that is to create the jobs that will benefit our economy," Velázquez said. "I cannot trust that [agencies] will do the right thing without the law that will require them to comply."

Sen. Olympia Snowe, R-Maine, also recently expressed concern about FEMA's revised contracting strategy. Snowe, who chairs the Senate Small Business and Entrepreneurship Committee, said in a letter to acting FEMA Director R. David Paulison that she is particularly concerned that the agency is not moving to immediately re-bid all contracts.

"I see no reason why the work for this disaster and future disasters cannot be apportioned among small businesses or teams of small businesses on a local or regional basis in accordance with the Small Business Act," Snowe wrote. "With unemployment and business interruptions in the wake of natural and other disasters, it is imperative that every federal agency involved in disaster recovery meets and even exceeds the statutory goals for small business prime contracting."

Snowe asked Paulison to provide the committee with an update on FEMA's plan for meeting small-business goals in Katrina-related contracting, as well as the subcontracting plans for contracts that already have been given to large companies.