According to a 2005 report authored by Harold Damelin, then SBA Inspector General, said, “The Small Business Act establishes a Government wide procurement goal that 23% of the total value of all prime contract awards for each fiscal year [should] be awarded to small business. As the advocate for small business, the SBA should strive to ensure that only small firms obtain small business awards and agencies only receive small business credit for awards to small firms.”
Essentially, small businesses are to get 23% of government awarded contracts per fiscal year. Further, the departments or agencies that solicit the bids must be accountable by awarding 23% to small businesses, and then accurately reporting the actual percentages awarded to the small business sector. Sadly, this is not the case.
The 2005 report states that the Government Accounting Office (GAO), the SBA’s Inspector General, and the SBA’s Office of Advocacy, have found in repeated studies that agencies are counting awards made to large firms toward the 23% required for small companies. A primary reason is due to company. At the initial awarding of the contract, the successful bidder may be a legitimate small business. During subsequent contract renewals, the once small business has grown into a large business. Since the SBA has no rules in place requiring the original small business to recertify its current size, it can go unquestioned for the life of the contract. Two other reasons include human error by the contracting officials, and more egregiously, an unwillingness to enforce existing rules and policies about how to award contracts. The result is to award government contracts to undeserving big business at the expense of the small business sector.
A Department of Interior July 2008 report written by Inspector General Earl Devaney found similar results. During fiscal year 2006, $5.7 million in awards were issued to Home Depot, John Deere, Dell Computer, Sherwin Williams Paint, Starwood Hotels, and Waste Management; huge companies classified as awarded to small business. This report blames the false classification on data entry mistakes, reliance on incorrect data, and failure to verify the applicant’s size.
The GAO issued a report in October, 2009 on fraud in the Service Disabled Veteran Owned Small Business Program (SDVOSB); again, finding poor results. In fiscal year 2007, the SBA reported that SDVOSB had $4 billion in government contracts earmarked for them. GAO was asked to investigate the awarding of contracts. GAO randomly picked ten contracts, totaling about $100 million. They found three of the ten contracts had ineligible recipients, totaling about $12.7 million. Obviously the SDVOSB program does not have adequate fraud prevention in place and allegedly a database to list disabled veterans does not exist.
In all instances, the only way to discover fraud is for a bid-protest to be issued by a losing bidder. Incredibly, when fraud has been discovered, there are no consequences for the fraudulent bid winner. They are allowed to complete for the contract and are not suspended or disbarred from the government contractor list.
Since 2003, 25 known government investigations have uncovered billions of dollars monthly being diverted away from small business to huge companies. The American Small Business League estimates there are $100 billion per year diverted away from small business to corporate
In May of 2009, Congressman Hank Johnson, D-GA., introduced a bill to cure this problem (HB 2568, The Fairness and Transparency in Contracting Act). The bill enjoys bipartisan support, but President Obama has refused to endorse it.
The thought of widespread incompetence continues to take center stage. The mere fact that data entry errors, failure to verify business sizes, and in some cases, an intentional disregard of policies and procedures has been allowed to continue for years, begs for an explanation; why?
Why was the disabled veteran program implemented without a database of disabled veterans to check loan eligibility against? The fact is that such a database does exist because they are sent government or VA checks monthly. Why was this overlooked?
How can a government contracting official offer small business contracts to Home Depot or John Deere?
As a former small business owner, generating revenue that enabled my company to pay its bills was my primary focus. If enough revenue was coming in, day to day management of the company was far easier. Keep in mind that the SBA, and the various agencies that award government contracts, do not have sales to worry about. Keeping their department open is not a concern. All they have to do is fulfill their duties and obligations. How can so many repeated mistakes happen, with so much less to concern themselves with, compared to an ongoing business?
Finally, President Obama’s campaign rhetoric shows he is well aware of the diversion of contracts away from small business to the corporate giants. That same rhetoric contained statements that he would end the problem. Why then, has he not endorsed Congressman Johnson’s Fairness and Transparency in Contracting Act?
Just how big is small business? The SBA considers a small business to have 500 or fewer employees. Call your congressmen and senators and ask to have this injustice corrected.
Dave Von Holten
Co-Founder
Business Credit Services, Inc.
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