Agencies fall short of small business contracting goals

The government as a whole and more than two thirds of agencies failed to meet small business contracting goals last year, according to figures released by the head of the Small Business Administration Friday.

In a teleconference with reporters, SBA Administrator Steven Preston said the figures, while disappointing on some levels, reflected an increased level of transparency and higher standards for data accuracy than in previous years.

"We have a lot of work to do," Preston said. "But we are going in the right direction."

According to SBA's report on fiscal 2006 contracting, a total of $77.7 billion -- or 22.8 percent of all federal contract dollars -- went to small businesses. This was just short of the governmentwide goal of 23 percent. A bill that passed the House in May would increase that statutory goal to 30 percent.

The government overall did meet a subgoal of awarding 5 percent of contract dollars to small disadvantaged businesses. Agencies cumulatively gave 6.8 percent of contract dollars to such companies, according to the report.

SBA also released its first Small Business Procurement Score Card on Friday, which used a traffic light system to measure each agency's compliance with the acquisition goals. Twelve received a grade of red, the lowest score possible.

To earn a good mark, agencies had to reach the 23 percent goal and meet targets in at least three of four socioeconomic subcategories. These were the small disadvantaged business goal, awarding at least 5 percent of all contract dollars to women-owned small companies and granting no less 3 percent of contract dollars to businesses owned by service-disabled veterans or operating in a historically underutilized business zone.

Just seven of 24 agencies met their small business contracting performance standards: the Agriculture, Energy, Homeland Security, Housing and Urban Development, Transportation and Veterans Affairs departments, and the SBA itself.

But the bulk of agencies fell well short of these goals. For example, the Defense Department -- far and away the government's largest procurer of goods and services -- awarded 21.8 percent of its contracts to small businesses and met only the small disadvantaged business goal.

The General Services Administration, which signs prenegotiated contracts for other agencies through its Multiple Awards Schedules, failed to meet its overall small business goal. The agency awarded 32 percent of its contracts to small businesses, but the SBA determined that because of the nature of the agency, the GSA's small business goal is 45 percent.

The House Small Business Committee expressed disappointment in the new figures, saying the failure of agencies to meet the governmentwide 23 percent goal amounted to $5.4 billion in lost opportunities for small businesses.

"Year after year, the federal government has failed to reach their small business contracting goal, and this year is no exception," said committee chairwoman Rep. Nydia Velázquez, D-N.Y., in a statement. "Once again, the government has neglected to take advantage of the innovations and quality products offered by small firms, resulting in billions of dollars that instead went to large government contractors."

Meanwhile, in light of numerous reports that the information used to substantiate the small business figures was inaccurate, the SBA and the Office of Federal Procurement Policy recently asked all agencies to cleanse their 2005 and 2006 data for contracts mistakenly coded as small. The data scrubbing resulted in $4.6 billion in improperly coded contracts, bringing down last year's total from 25.4 percent to 23.4 percent.

Critics suggest there still are many reasons to be skeptical of the SBA's math. Eagle Eye Inc., a Fairfax, Va., research firm that focuses on government spending, recently released data indicating that roughly $82 billion -- or about 20 percent of all prime contracts --went to small businesses last year.

The discrepancy with the SBA's numbers can be attributed to the fact that SBA does not count all federal procurements. Contracts performed outside the United States, including those related to Iraq reconstruction, are excluded. Contracts funded predominantly by agency-generated funds rather than congressionally appropriated money, including acquisitions by the CIA, Federal Aviation Administration and U.S. Postal Service, are also left out of SBA's figures.

Additionally, SBA's report includes contracts held by industry giants, such as Lockheed Martin and SAIC. For years, agencies have been allowed to count as small those contracts originally awarded to small firms that subsequently were purchased by larger companies. Democrats on the House Small Business Committee last year found that $12 billion in contracts that agencies claimed went to small businesses were awarded to some of the country's largest firms.

The SBA, which says that figure is significantly smaller, says a new regulation should remove most of the oversized contractors from the list no later than 2008. The rule, which went into effect June 30, requires small businesses that merge or are acquired to recertify their size immediately. But firms with small business contracts that expand into larger businesses will not have to recertify their size status until the completion of the first five years of a contract.

Preston argues that annual recertification would put an intense burden on both small businesses and federal agencies, which may think twice about awarding a lucrative contract to a business that is on the size status bubble. "This accommodation allows small businesses to invest the way they need to," Preston said.

But that rationale does not fly with Lloyd Chapman, president of the American Small Business League. He has spent the past four years battling SBA to prevent agencies from artificially inflating their small business figures, and plans to file suit this summer challenging the new regulations. He also spent a week in early August lobbying members of the House and Senate to introduce a bill that would prevent agencies from counting contracts held by Fortune 500 companies as small.

"The bottom line is, 'Are these contracts going to small businesses?'" Chapman asked. "And the answer is no."