SBA Data Show Large Firms Are Nabbing Contracts Reserved for Small Businesses

Federal procurement data show that large companies, including leading defense contractors, last year received millions of dollars in contracts intended for small and disadvantaged businesses. The data was obtained last week by the American Small Business League, which fought a multi-year court battle to obtain the information from the Small Business Administration.    

The group, based in Petaluma, Calif., and run by software entrepreneur Lloyd Chapman, has been a thorn in the side of SBA for years. It accuses the agency of catering to large companies that misrepresent themselves as small businesses to win government contracts.

Last week the league obtained from SBA an Excel file containing nearly 107,000 entries of vendors that received $83 billion in small business contracts in fiscal 2013. While SBA annually releases analytical information about small business contracting, it took a lawsuit from the league to force the agency to release its list of vendors who receive small business contracts.

The agency sought to protect its list from disclosure on the grounds that it is compiled from data it culls from a General Services Administration database. U.S. District Judge Marilyn Hall Patel found that reasoning flawed and in a 2008 ruling ordered the information released. This is the first year SBA has provided the information without a court battle, Chapman said.  

Prepared by SBA’s Office of Government Contracting and Business Development, the list is drawn from the fiscal 2013 Federal Procurement Data System. The list does not include any information about the contracts themselves, only the names of vendors who received small business contracts and the amounts they were awarded. It includes entries for such contractors as Chevron U.S.A. Inc. ($8.5 million); Lockheed Martin Management Systems Designers, Inc. ($47 million); Northrop Grumman Systems Corp. ($455,636); Raytheon BBN Technology Corp. ($5 million); Raytheon Company ($418,766); and General Dynamics C4 Systems ($947,203).

“This list of companies is the biggest piece of evidence the American Small Business League has ever received from the SBA through a FOIA request,” said Chapman. In the past, attorneys for the SBA claimed the agency had no knowledge or information on the actual recipients of federal small business contracts, he said.

Chapman believes the administration is trying to dismantle the SBA "through policies that dramatically increase the federal definition of a small business, and we can’t let him do that," he said.

The SBA inspector general last month substantiated the notion that the agency mischaracterizes companies in a damning report that found many agencies—while striving to reach the governmentwide goal of awarding 23 percent of contract collars to small businesses—were “overstating” the eligible firms. The watchdog identified more than $400 million in contract dollars that went to firms too large to qualify for the Section 8(a) set-asides for small businesses and those in poor communities.

The IG recommended that the SBA’s associate administrator for government contracting and business development strengthen controls between SBA databases on certification data of 8(a) and HUBZone firms to improve the accuracy of information reported to the Federal Procurement Data System. The SBA largely agreed.

A previous league study concluded that 75 percent of such awards were given to large firms.  

On Wednesday, the small business league said the administration “has adopted a new strategy to close the agency with a series of policies that appear to be designed to dilute and dismantle federal small business programs,” a reference to a series of proposed rules SBA began releasing in that the league says “dramatically increased the federal definition of a small business in hundreds of categories.”

One proposed rule out in August would remove the Information Technology Value Added Resellers exception under North American Industry Classification System 541519. It also “proposes to increase employee-based small business size standards for 30 industries and three sub-industries.”

The league says that would mean that a small information technology firm “with annual sales in excess of $27.5 million will be considered a large business while contracts to firms like Lockheed Martin, Northrop Grumman and Raytheon will continue to be counted as small business contracts.”

Asked to respond, an SBA spokeswoman did not address the question of why large companies may be receiving contracts meant for small business, but said the agency is “puzzled” by the assertion that its proposal to remove the Information Technology Value Added Resellers exception is a “clandestine” effort to hurt small businesses. “Instead, the agency feels the proposal will provide a clear level of transparency to contracting officers, small businesses and the public at large.”

SBA said the change “prevents the general public from being confused when firms are awarded contracts under the ITVAR exception, as contracting officers are not able to identify size standard exceptions” in the federal procurement database. The proposed rule also “eliminates ambiguity with respect to the classification of a contract,” whether, for example, the contract for which the exception may apply should be classified as a service contract or supply contract, she said.

In addition, SBA said, the rule will not be finalized until after Nov. 10, the deadline for public comments. “Even with the proposed elimination, the result will still have a very minimal impact on businesses,” the spokeswoman said. “An analysis of 2007 economic census data shows that more than 99 percent of the firms below the 150-employee level will continue to operate as small under a revenue-based size standard,” she said.

Justin Chiarodo, a law partner with Dickstein Shapiro, whose clients include small businesses, noted that the SBA is required to revise the business size standards under the 2010 Small Business jobs Act. But a key issue is “whether current regulations are adequately enforced and followed to make sure large companies aren’t capturing opportunities that are intended for small business,” he said.

“There’s a tremendous amount of enforcement now, but one challenge is that some aspects of the program rely on information provided by the contractors.” Once a company receives an 8(a) set-aside contract, there is a “fairly involved certification process,” he says, but in other cases there’s only a representation from the company, which can be “mistaken, misleading or fraudulent—the regulations are confusing,” he said. “Everybody favors supporting a small business base in federal procurement, and it will continue. The challenge is making sure people understand and follow the rules so we get an accurate picture of where contracting dollars actually going.”

(Image via Ken Wolter/Shutterstock.com)