Investigators find Interior contract coding problems

With nearly 50,000 employees in 27 countries and revenues topping $22.7 billion in 2007, John Deere Co. hardly qualifies as a small business.

But, that's just how contracting officers at the Interior Department categorized the company, which ranks 98th on the Fortune 500 list, on fiscal 2006 and 2007 contracts worth more than $618,000.

John Deere was among 12 large companies -- nine of which are on the Fortune 500 list -- Interior mistakenly coded as small businesses during that two-year period, according to a report released this week by the agency's inspector general.

"The intent of the Small Business Act is to aid, counsel, assist and protect the interests of small business concerns," wrote Interior IG Earl Devaney. "However, unreliable data and data entry mistakes … have not protected small business interests."

In total, the IG found roughly $5.7 million in contracts were incorrectly coded as going to small businesses. The majority -- more than $4.1 million -- went to universities and state agencies, which are ineligible for small business awards.

In a statement Interior Deputy Secretary Lynn Scarlett acknowledged the coding errors, but argued that they represented a fraction of the agency's overall small business actions. Interior reported awarding more than $1.39 billion in contracts to small businesses in fiscal 2006 and $1.6 billion in fiscal 2007.

The Small Business Administration echoed Scarlett in a statement Wednesday that argued the report demonstrates that coding errors are limited to a "minuscule percentage" of Interior's contracts and that steps the agency has taken to clean up contracting data have worked.

"SBA applauds the inspector general's useful report for its thoroughness and clarity on the issue of small business contracting," SBA acting Administrator Jovita Carranza said. "We also commend the Interior Department's efforts to ensure the integrity of small business contracting data and keep miscoding to a minimum. This report is a useful roadmap in our ongoing efforts to identify and cure these technical issues."

In an interview, SBA spokesman Michael Stamler acknowledged that since the IG reviewed only a small fraction of the agency's small business contracts, other coding mistakes could still exist.

While the large companies that were miscoded did not actually win contracts set aside for small businesses, the errors the IG discovered allowed the agency to count the awards toward annual small business contracting goals.

The federal government has a statutory goal of awarding 23 percent of all available contract dollars to small businesses. In fiscal 2006 -- 2007 figures are not yet available -- the Interior Department reported awarding more than 55 percent of its eligible contract dollars to small businesses, one of the best records governmentwide.

The IG attributed the mistakes to contracting officers who entered data into the system incorrectly, failed to verify the companies' business size and relied on the work of other agencies.

For example, five contracting officers admitted they did not check the Central Contractor Registry database prior to awarding contracts to Waste Management Inc., a global firm with more than $13 billion in revenue last year. According to a 2006 Interior policy memorandum, department contracting offices are required to confirm a company's size prior to awarding a contract.

Contracting officers told Interior investigators that some of their colleagues "often click through mindlessly" when entering information into the government's contracting database, known as the Federal Procurement Data System. Another said that "if contract officers did their job, [these errors] wouldn't happen."

In several other cases, divisions of Xerox, Dell and John Deere appear to have misrepresented themselves as a small business in CCR, a database in which all the information is entered by the vendor.

Scarlett said Interior is "working to correct these issues."

The IG also found problems with interagency contracts, such as blanket purchase agreements, General Services Administration Multiple Awards Schedule contracts and indefinite-delivery, indefinite-quantity vehicles. The report found that with these multiagency contracts, the size determination was made by the original contracting officer, not an Interior official.

"When that contracting officer incorrectly codes a contract as a small business, the error is repeated on all subsequent task orders," the report stated.

Lloyd Chapman, president of the American Small Business League, said the report proves that the problem of large companies winning small business contracts is real and more widespread than the government will admit.

"The SBA continues to say that this is a myth," Chapman said. "But, there have been about 12 reports [on this topic] since 2003. It is unacceptable that this is still going on and that Congress has not passed legislation to stop it."