Dems: Large businesses miscoded as small got $12 billion in contracts

Large firms miscoded as small ones earned agencies credit toward small business contracting goals to the tune of $11.9 billion in 2005, a group of House Democrats reported Wednesday.

In an annual score card, Democrats on the House Small Business Committee concluded that the federal government earned a D grade for its dealings with small businesses last year, the sixth failing mark in a row. They said the small business contracting rate was 21.6 percent in 2005, short of a 23 percent governmentwide goal.

That amounts to small firms losing out on $4.5 billion in contracting opportunities last year, the group said, based on what the total would have been if the small business contracting goal had been met.

The Small Business Administration said last month that its analysis showed that 25.4 percent of federal prime contracting dollars went to small businesses in fiscal 2005.

The Democrats' score card also tracked the government's achievements against goals in four categories of small firms, and found that none of those goals were reached in 2005. It said small disadvantaged businesses won 3.6 percent of federal contracts, short of the 5 percent goal; minority-owned businesses in SBA's 8(a) certification program won 3.3 percent against a goal of 5 percent; women-owned businesses won 3.3 percent, failing to meet a 5 percent goal; and businesses located in historically underutilized areas were awarded 1.9 percent, short of a 3 percent target.

Those numbers match figures for those four programs listed in a 2005 SBA report.

The Democratic lawmakers' report charged that in the 8(a) program, contracts with Alaska Native corporations accounted for $2.2 billion. Those companies enjoy certain regulatory advantages, including exemption from a $3 million limit on the size of no-bid contracts that can be awarded to other types of disadvantaged businesses, and have been criticized recently in the House. Without including those contracts, 8(a) companies won only 2.6 percent of contract awards last year, the report said.

"What we're are seeing is a sheer lack of accountability from the administration that is resulting in these large businesses receiving small business awards," said Rep. Nydia Velazquez, D-N.Y., ranking member of the House Small Business Committee, at a press conference announcing the report.

The SBA was unable to respond by Wednesday evening to questions about how mistaken size codings are corrected in the system.

Velazquez noted that contract bundling, in which numerous unrelated purchases are lumped together into a single large procurement, is an ongoing practice that hurts small businesses. Contract bundling is especially prevalent at agencies that have high incidences of miscoded contracts, she said, suggesting that agencies that have met their small business contracting goals are less likely to unbundle large procurements.

She called on the Government Accountability Office to investigate whether large businesses that were miscoded as small ones have intentionally misrepresented themselves. She said the offense can be prosecuted, but only if the miscoding was "willful," which is difficult to prove.

Velazquez also called on inspectors general at the Treasury, Transportation, State and Education departments -- the four agencies with the most coding errors -- to investigate whether contracting officers were using that as a tactic to meet small business contracting goals.

"While agencies and big businesses turn their backs, the problem is only getting worse for small businesses, to the point where we are seeing record lows of small business achievement in the federal marketplace," she said.

Velazquez noted that her committee has been unable to move an SBA reauthorization bill forward because of a split along party lines, but lauded the Senate Committee on Small Business and Entrepreneurship for doing so. She said the Democratic lawmakers are sending letters to each of the 2,500 large businesses that were miscoded last year, asking that they take action to adjust their status.