Report: Billions in federal small-business contracts go to large firms
March 2, 2012 by cs
Here are just a few of the companies that were considered a small business in the past year: Apple, Chevron, Verizon, Bank of America and Disney. At least, that’s what one advocacy group found when it perused the Federal Procurement Data Systems for government contracts for the past year.
Each year, the government attempts to award at least 23 percent of all federal contracts to small businesses. But new research from the American Small Business League (ASBL) shows that 72 large companies received $16.4 billion in federal small-business contracts, which the group attributes to a combination of policy loopholes, human error and mis-categorization.
“It’s really hard for a small company to compete with a company that has 5,000 employees,” said Brian Reeder, communications director for the ASBL. “When bigger companies are actually receiving the contracts, there’s nothing left for small businesses.”
The Small Business Administration cautions that it has not yet released its official data on contracting for 2011 and therefore can’t speak to the accuracy of ASBL’s findings. SBA will publish its official 2011 Small Business Procurement Scorecard this summer
“Each federal agency is responsible for ensuring the quality of its own contracting data, but SBA conducts an additional analysis to help agencies identify any potential data anomalies,” said John Shoraka, the SBA’s Associate Administrator for Government Contracting and Business Development in an e-mail statement. “As part of its ongoing data quality efforts, SBA is continuing to work with federal agency procurement staff to provide tools to facilitate review of data, implement improvements to procurement systems and conduct training to improve accuracy.”
Holes in the system
The ASBL report, released Thursday morning, found that of the top 100 companies receiving federal small business contracts, 72 were large companies that exceeded the SBA’s small-business size standards, which vary depending on the sector.
It’s difficult to identify just one reason why the contracts are awarded as they are, but experts say there are countless small leakages in the government procurement process that can cause large businesses, either purposefully or indirectly, to occasionally win out over small ones.
Ray Bjorklund, chief knowledge officer with the government-contractor software company Deltek, said it can be hard for the SBA to pick the “right” size for a company to be considered a small business under the North American Industry Classification System (NAICS) codes, the government’s business classification system.
“When SBA is looking at one class of establishment, such as a corn farmer, there are a lot of small-business corn growers, but also large corporate growers,” Bjorklund said. “It’s not an easy thing to maintain size standards in a way that keeps up with growth in the economy and changing relationships between sectors.”
Beyond that, when agencies begin feeling the pressure to meet their 23 percent goal, Bjorklund said they sometimes choose NAICS codes that have larger-sized caps if they want a large company to fit into a small-business contract.
“If the agency is anxious to meet its socioeconomic goals, they say, ‘I can make this a small-business set aside if I can justify it this way,’” he said. “All of this is legal, but they should have been more judicious in their acquisition strategy.”
Not close enough for government work
Reeder said human error is another problem in how contracts are coded. For example, Apple was likely never registered as a small business, but Reeder speculates an agency simply needed something only Apple could provide — iPads, for example — and then neglected to change the code from “small” to “not small” before the transaction was completed. That contract would ultimately be counted toward an agency’s small-business goal.
“There are a lot of those examples, and they really add up,” he said.
The errors may stem from a larger problem in the contracting world — the thin ranks of the acquisition workforce and the paucity of the available funds to train them.
“The acquisition workforce is not as big as it should be, and they’re not as qualified, because years ago, their funding was slashed,” Bjorklund said. “These people have inboxes stacked very high, and they want to do the very best possible job, but sometimes mistakes get made.”
The SBA drew a similar conclusion in a report it issued on the same topic last October, saying, “While some contractors may misrepresent or erroneously calculate their size, most of the incorrect reporting results from errors made by government contracting personnel.”
Small, then big, but still small
There is also a loophole that allows small businesses that are bought by large companies to continue to count as “small” for the purposes of contracting for years after they’re purchased. For example, the report says that CapRock Government Solutions, which ASBL asserts received more than $200 million in small business contracts last year, is a subsidiary of Harris Corporation, a multi-billion dollar company.
“We’re not arguing the companies should lose those contracts, but it seems silly to count them as small when they’re not small,” Reeder said.
Many of these contracts were awarded to small businesses that are actually subsidiaries of large companies, Reeder said, and they, therefore, don’t face the same odds that independent small companies do.
Bjorklund said he believes there are not quite as many large companies receiving small-business contracts as the ASBL has found. Still, he said, “the problem still exists, there’s no denying that.”
Last year, the ASBL found that there were 60 large companies included among the top 100 federal small business contractors, so they say the problem has “at best, stayed the same, if not gotten worse.”
Reeder called for better enforcement of contracting standards by the SBA, but Bjorklund explained that the SBA is largely “hands-off,” and that the ultimate responsibility falls on the agency issuing the contract.
In the October report, the SBA’s Office of the Inspector General said it had made “mixed progress” on the issue of small-business contracts going to large businesses. The agency has developed a program to ensure that contracting personnel review contractor sizes, but it has made “limited progress” in developing regulations to correct the misapplication of industry codes.
So how big of a problem is this for small contractors? Medium, according to Bjorklund. Contractors of every size are losing business as the Department of Defense and other agencies cut back. Small firms don’t have quite the same lobbying clout that larger ones do, he explained, so the impacts for them might be greater — especially if they aren’t getting all the contracts they should be. Then again, at least the government is doing something for small firms.
“At least there are small-business goals that the government is trying to meet,” he said. “That makes it a little better than it would be in the commercial marketplace — where everyone is fending for themselves.”
–by Olga Khazan, The Washington Post, Published: February 22, 2012 and updated: Thursday, February 23, 8:00 AM at http://www.washingtonpost.com/business/on-small-business/report-billions-in-federal-small-business-contracts-go-to-large-firms/2012/02/22/gIQA0EV4TR_story.html.
OFPP, SBA team up on procurement data
November 22, 2011 by cs
Agencies may soon have a smoother and faster process to deal with small-business contracting data. The Office of Federal Procurement Policy and the Small Business Administration said Nov. 14 in a memo that they are aligning operations.
Each year, SBA sends individual reports to agencies on anomalies related to small-business contracting awards. The reports help officials answer questions about data before SBA releases its small-business contracting scorecards. Then agencies turn in reports to OFPP and the General Services Administration, certifying that their procurement data is accurate and complete.
This fiscal year, OFPP and SBA will begin integrating the two processes. Officials said integrating the small-business data quality reviews will reduce the acquisition workforce’s work and improve acquisition planning. They also said the new alignment will improve accuracy of the data.
For the fiscal 2011 data reviews, SBA will provide agencies with anomaly reports. These reports will be focused on high-risk areas though.
OFPP and SBA want something in return for their changes.
“We ask that you increase the attention given to small-business data quality as part of your ongoing data validation efforts,” they wrote in the memo.
Officials expect agencies to incorporate a stronger focus on small-business data.
To help with that, GSA is developing standard anomaly reports available in the Federal Procurement Data System. These reports use the protocols currently available to agencies. They will be easier to use with a standard form.
About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. This article appeared Nov. 18, 2011 at http://fcw.com/articles/2011/11/18/ofpp-sba-small-business-procurement-data.aspx.
SAM deployment likely to be delayed; GSA might replace DUNS
October 25, 2011 by cs
A General Services Administration (GSA) effort to consolidate federal online acquisition systems will likely receive no development money during the current fiscal year, causing GSA officials to anticipate a delay in the project.
However, GSA officials are going forward with a planned sources sought notice, to be released shortly, seeking private sector input on the viability of replacing mandatory federal vendor acquirement of a DUNS number from Dun & Bradstreet with a government-generated unique identifier.
If the government does replace DUNS with its own unique identifier system for vendors, the transition would likely be tied to the third phase of the online acquisition system consolidation effort, said Kathleen Turco, head of GSA’s office of governmentwide policy, during an Oct. 21 interview.
The integration effort seeks to consolidate 9 currently separate systems into one, to be known as the System for Award Management, or SAM. IBM received a $74.4 million contract in 2010 to develop the SAM architecture; part of the consolidation effort includes unifying the currently disparate databases into a single, unified one.
Because GSA received $7 million in development funds during fiscal 2011, which ended on Sept. 30, it will be able to proceed with the first phase of the consolidation, which will tie together Central Contractor Registration, Online Representations and Certifications Application and the Excluded Parties List System.
Starting in May, front-end users will find that they have to log onto SAM only once to access the functionalities of all three systems, Turco said.
However, a request for $15 million in development, modernization and enhancement money for the current fiscal year has bumped up against spending constraints; the Senate Appropriations Committee markup of GSA’s fiscal 2012 spending bill denied the request in total. The House version would appropriate about $3 million in DME money for the project, Turco said. Congress has yet to pass any fiscal 2012 appropriations bill; the federal government is operating under a continuing resolution that expires on midnight of Nov. 18.
As a result of the House and Senate marks, Turco said GSA will likely postpone roll out of phase 2, under which GSA plans to consolidate FedBizOps, the Electronic Subcontracting Reporting System, and the Assistance Program Catalog. Originally, GSA had planned to unveil that phase in the spring of 2013; if GSA receives sufficient funding for fiscal 2013, it would be able to complete that phase in spring 2014, Turco said.
The third phase would consolidate FPDS , Wage Determinations Online and the Past Performance Information Retrieval System. The earliest phase 3 could now be completed–it was originally planned for spring 2014–is now spring 2015, Turco said.
It’s in conjunction with phase 3 that GSA would likely also transition from using DUNS as a unique vendor identifier to a government-generated number, if GSA decides to do so, Turco added.
Vendors wishing to do business with the government must receive a unique identifier–in some cases, more than one, depending on the number of physical locations and legal divisions a company has–and GSA has long contracted with Dun & Bradstreet for government vendors to receive Data Universal Numbering System identifier for free.
But, the government pays Dun & Bradstreet $18 million a year for the service, making it the single most expensive element of the Integrated Acquisition Environment, the name GSA gives to 9 systems set for consolidation into SAM.
“We’ve had a lot of push on us from the Hill and many vendors have said to us ‘Why is it only Dun and Bradstreet?’” Turco said.
However, replacing DUNS would be no easy task, she acknowledged, since DUNS are used in financial systems to pay vendors and have become deeply integrated into IAE feeder systems.
– by David Perera, Fierce Government IT, Oct. 24, 2011 – http://www.fiercegovernmentit.com/story/turco-sam-deployment-likely-be-delayed-gsa-might-replace-duns/2011-10-22?utm_medium=nl&utm_source=internal
Task force calls for reforms to ease small business contracting concerns
September 24, 2010 by cs
A presidential panel is calling for major reforms of the government’s small business contracting guidelines, procedures and regulations.
The Task Force on Federal Contracting Opportunities for Small Businesses on Wednesday released its suggestions for helping undersized firms break into the government marketplace and win federal contracts, strengthening procurement policies, enhancing training for acquisition officials and improving contracting data on federal websites.
Among its most significant proposals, the task force recommended the White House require agencies to reserve work on task-and-delivery order contracts or Multiple Award Schedule contracts for small businesses. Under existing policies, considerations for small business set-asides are made prior to the award of a contract. But acquisition policy officials have been reluctant to apply set-asides for individual orders, despite a 2008 legal opinion by the Government Accountability Office, which supported the policy change.
“Existing tools that might help direct additional work toward small businesses, such as the consideration of socioeconomic status for schedule orders and partial set-asides for contracts, appear to be underutilized and misunderstood,” the report said. “Many public comments offered to the task force voiced frustration over the continued failure of policy officials to tackle these issues.”
The panel also suggested the Small Business Administration and the Office of Management and Budget’s Office of Federal Procurement Policy issue guidance to prevent unjustified contract bundling; clarify rules for small business teaming; strengthen the requirements for developing small business subcontracting plans; review the quality of small business contracting data; and assess the impact of insourcing on small business contractors.
“While some work performed by small business contractors may need to be insourced if it is inherently governmental or is of a critical nature and the agency is at risk of losing control of its operations, the task force believes much of the work will continue to be performed by contractors, including small businesses,” the report said.
President Obama created the task force in April. Several agencies, including OMB and SBA, co-chaired the group.
“When a small business gets a federal contract, it’s a win-win,” SBA Administrator Karen Mills wrote Wednesday on the White House blog. “The business gets the revenue it needs to grow and create jobs, and at the same time, the government benefits from working with some of the most diligent, innovative and responsive people in the world.”
The task force also addressed concerns about the skills and capabilities of the acquisition workforce to implement small business guidelines. The report recommends revising core certification for procurement officials and requiring for the first time mandatory training on small business policies and regulations.
Industry has complained that the government’s small business contracting goals have no teeth. For the past several years, the government has missed its goal of awarding 23 percent of all prime contracting dollars to small businesses, but little to no enforcement was taken against underperforming agencies.
The task force encouraged the Obama administration to adopt a system of carrots and sticks, rewarding agencies and employees who successfully promote small business contracting with awards and recognition, and holding officials accountable when they fall short of their goals. The report does not, however, suggest repercussions for poor-performing agencies.
Industry officials credited the task force for addressing many top concerns, but some remain skeptical. “As long as the barriers to contracting with small businesses are allowed to exist and the laws that protect their rights are not enforced, agencies will continue to fail in their efforts at contracting with them,” said Henry Thomas, co-founder of a think tank operated by the Fairness in Procurement Alliance, an association that advocates for small business contractors.
Among its most ambitious recommendations, the task force called for a systematic reorganizing and refunctioning of two leading government procurement websites. The panel suggested making FedBizOpps, which provides industry with notice of upcoming contracts, a one-stop source for annual requirements forecasting, the posting of subcontracting opportunities, the outreach calendar of all federal agency matchmaking and training events and a directory of online agency small business resources.
The much-maligned Federal Procurement Data System, which tracks all contracts, would receive an upgrade to enhance the use of its small business information. SBA unveiled on Wednesday its new Small Business Contracting Dashboard, which breaks down spending by small business category from fiscal 2000 through fiscal 2009.
“Implementing these new tools and recommendations won’t be easy,” Mills said in the blog post. “But our message today is clear: We’re going to build on what works in small business contracting. We’re going to implement new tools to help more small businesses compete and win.”
The task force will report to White House by the end of the year on progress with implementing the recommendations.
– by Robert Brodsky – GovExec.com – September 15, 2010
SBA contracting functions could be moving to Denver
April 23, 2010 by cs
Small Business Administration leaders have recommended moving internal acquisition functions from the agency’s Washington headquarters to its Denver Finance Center, Administrator Karen Mills announced on Wednesday.
Mills told the House Small Business Committee that as part of a reorganization of its purchasing operations, agency contracting would move from the Office of Mergers and Acquisitions to the Office of the Chief Financial Officer. The CFO, who is based in Washington, supervises the Denver office, which currently focuses on financial management, administrative and programmatic accounting, and financial reporting.
SBA’s CFO, chief operating officer, and associate administrator for mergers and acquisitions suggested the change to Mills. A final decision on the move has not been made.
Officials announced the proposal to staff in an internal memo on Monday, according to SBA spokeswoman Hayley Matz. The American Federation of Government Employees, the labor union representing the contracting officials, has been notified of the recommendation but has yet to be briefed on the plan, she said.
“The [CFO] currently utilizes automated financial management tools and processes that will enable a comprehensive review of acquisition practices and existing contracts,” Matz said. “Such a review will result in the development of more strategic acquisition approaches to leverage buying power and achieve best value, increase use of technology to improve contract management, reengineer business processes to reduce cost to spend, build the skills of the acquisition workforce and end contracts that are no longer needed.”
The reorganization would lead to the elimination of SBA’s Office of Business Operations, Matz said. The Office of Grants Management, meanwhile, would be established to administer, award and monitor grants programs.
The transition would affect about 10 SBA contracting officers, who would be offered positions in Denver. Those unwilling to move to the Mile High City would receive help finding positions at the same grade level either at SBA or at another federal agency, Matz said. SBA does not expect the move to result in a net change in the size of its procurement staff.
SBA is the 10th agency to align its contracting functions under the CFO’s office, Mills testified.
But a Senate source raised questions on how the transition would comply with the 2003 Services Acquisition Reform Act, which mandated the creation of agency chief acquisition officers. The bill requires that agency procurement functions be managed by a non-career official whose primary duty is acquisition management. SBA did not respond to questions about the statute.
Mills told the committee she has taken a number of other steps recently to improve the operations and management of SBA’s small business contracting programs.
In response to a pair of Government Accountability Office reports finding widespread fraud in the HUBZone Business Development program, SBA increased the number of site visits from less than 100 in 2008 to more than 900 in 2009, Mills said. The agency is on track to conduct 1,000 additional visits in 2010.
“We’re working to ensure that only legitimate and eligible firms are benefiting from HUBZone,” she said.
To prevent ineligible firms from winning small business contracts, Mills said the agency has beefed up front-end oversight of the certification process. And, when companies are found to be out-of-compliance or ineligible to win small business contracts, they will have 30 days to remove themselves from the Central Contracting Registry database or SBA will do it for them, Mills said.
But, the agency’s chief watchdog testified that SBA’s contracting data often is inaccurate and unreliable.
In February, the SBA Inspector General’s Office issued an audit examining SBA’s fiscal 2008 acquisition data in the governmentwide Federal Procurement Data System. The report found SBA certified to the accuracy of its contracting data, even though 92 percent of a random sample of contract actions the IG reviewed contained one or more inaccurate or incomplete data elements.
The most common mistakes related to the size of the business, the code used to determine the size standard, the type of award, the contractor’s Data Universal Number System identifier, or the location of the contract.
“Due to the volume of errors identified in FPDS, it appears that contracting personnel did not review FPDS data inputs to ensure they reflected accurate information, as required by the Federal Acquisition Regulation,” SBA IG Peggy Gustafson said.
Mills called the audit findings “extremely disturbing and unacceptable.” But issues remain. The IG sampled SBA’s fiscal 2009 contracting data and found an error rate of 97 percent. The 2009 data indicated fewer problems with each individual data element, however.
Two other IG reports issued this month also raised concerns about SBA’s procurement functions. An April 9 memorandum found SBA’s current procurement workforce was “insufficient to effectively award, administer and oversee Recovery Act contracts as well as other SBA contracts.”
The second audit found SBA failed to report all noncompetitive stimulus contract actions to Recovery.gov and mischaracterized some of the actions it did report. SBA agreed with the findings of both reports and has begun to implement many of the IG’s staffing and oversight recommendations.
By Robert Brodsky – April 21, 2010 – (C) 2010 BY NATIONAL JOURNAL GROUP, INC. ALL RIGHTS RESERVED.
SBA Sued for Refusing to Release Information on Public Relations Contracts
April 13, 2010 by cs
On Tuesday, April 6, the American Small Business League (ASBL) filed suit against the Small Business Administration (SBA) under the Freedom of Information Act (FOIA). The SBA is refusing to release detailed information on four public relations contracts. (http://www.asbl.com/documents/20100406_FOIA4_complaint.pdf)
The ASBL suspects the SBA has spent American tax dollars to hire consultants to help them obscure the SBA’s role in diverting billions of dollars a month in federal small business contracts to Fortune 500 firms and other large businesses around the world.
In one case, the SBA paid $30,000 for a one-day meeting with APCO Worldwide Inc, a multinational communications firm specializing in crisis management. The SBA is refusing to release the complete details on that contract. In another example, the SBA paid $16,500 to the White House Writers Group. The SBA is refusing to release all of the details on that contract.
The SBA is also refusing to release any information whatsoever on two additional contracts for public relations consulting services.
The most recent information released by the Obama Administration found large recipients of federal small business contracts such as Lockheed Martin, Boeing, Raytheon, Northrop Grumman, Dell Computers, British Aerospace (BAE), Rolls-Royce, French giant Thales Communications, Ssangyong Corporation headquartered in South Korea and the Italian firm Finmeccanica SpA.
Since 2002, the SBA has claimed that the diversion of federal small business contracts to large corporations was the result of “miscoding.” In May of 2007, the SBA even went as far as to claim that it was a “myth” that large corporations received federal small business contracts. (http://www.asbl.com/documents/sbamythvfact.pdf)
In SBA Report 5-15, the agency’s Office of Inspector General referred to the diversion of federal small business contracts to corporate giants as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (http://www.asbl.com/documents/05-15.pdf) Another report, from the SBA’s own Office of Inspector General found that the SBA itself had reported contracts to large businesses as small business awards, including Dutch conglomerate Buhrmann NV with more than 26,000 employees worldwide. (http://www.asbl.com/documents/05-14.pdf)
On March 12, 2010, the Obama Administration removed 10 years of historical data from the Federal Procurement Data System – Next Generation (FPDS-NG), which has been used by the GAO and inspector generals from a variety of federal agencies to uncover fraud and abuse in federal small business contracting programs. The ASBL has filed for an injunction to force the Obama Administration to restore the data.
Why Do Corporate Giants Land Federal Contracts Meant for Small Businesses?
April 13, 2010 by cs
Few would disagree that federal contracts set aside for small businesses should go to small businesses — not corporate behemoths.
And yet it seems to happen again and again. Take one recent example: in late December, an IT company named QSS, a subsidiary of Dell Inc., landed a small-business contract for nearly $21 million from the U.S. Coast Guard.
What’s more, QSS — which in 2006 was purchased by Ross Perot’s “Perot Systems” before Perot was gobbled up by Dell last year — is listed in a federal database as a “self-certified small disadvantaged business.”
How can this be? After all, Dell employs some 76,000 people, and the government’s definition of a small business is one that, in this particular industry, employs no more than 1,000.
The answer depends on whom you ask. The most vocal small business activists insist that the government is acting negligently, even nefariously. Regulators in the federal Small Business Administration counter that the issue is mostly the byproduct of coding mistakes and mergers — human errors that the agency purports to be addressing aggressively under the Obama administration.
Whatever the case, the example with QSS — which Hispanic Business Magazine found through a simple search in the federal contracting database FedMine.Us — isn’t an isolated event. [GTPAC note: fedmine.us is a privately-operated, not government-operated web site.]
Other companies that have landed small-business contracts include General Dynamics — the fifth largest defense contractor in the world — Xerox, Office Depot, John Deere and McGraw Hill, according to a 2008 report from the Department of Interior’s Office of Inspector General. As for QSS, in 2008 it was the nation’s 28th largest recipient of small business federal contracts, according to FedMine.Us.
The 2008 report found that large corporations received $5.7 million in awards that should have gone to small businesses. But that was just within the Department of Interior. The total amount of small business contracts getting diverted to large corporations every year is difficult to ascertain, given the inherent murkiness of the issue. Some activists say it is well into the billions.
In October, the government organization in charge of watching over the SBA — that is, the SBA’s Office of Inspector General — said this issue is among the SBA’s most serious problems.
“Audits and other governmental studies have shown widespread misreporting by procuring agencies,” the report said. “Many contract awards recorded as going to small firms have actually been performed by larger companies.”
The issue is drawing more and more attention as politicians, economists and pundits talk about boosting small businesses in an effort to create jobs, reduce the unemployment rate and stimulate the lagging economy.
At least two bills are working their way through Congress to address this issue. One is co-authored by a duo of Senate moderates, Democrat Mary Landrieu of Louisiana and Republican Olympia Snowe of Maine; the other, by the lesser-known Congressman Henry Johnson, a Georgia Democrat.
By law, the federal government must strive to spend 23 percent of its entire purchasing budget for goods and services on small businesses. That’s a lot of money, seeing how the federal government spends more than half a trillion dollars every year. But by the government’s own admission, it hasn’t been meeting that mark.
It claims to come close. The federal government says it hit 21.5 percent in 2008. (The official report for 2009 hasn’t come out.)
But the American Small Business League, perhaps the nation’s most vocal critic on this issue, scoffs at this contention. Chris Gunn, ASBL’s communications director, insists the true amount is somewhere between 5 and 10 percent.
“The numbers speak to a very different reality,” he told Hispanic Business Magazine.
For starters, he said, the government exempts about a fifth of its purchasing budget from the goal, with the explanation that some contracts are too large for small businesses to handle. This alone, Mr. Gunn said, brings the true percentage down to 17.5 percent.
But Mr. Gunn says the bigger problem is that examples like the case of QSS are happening all the time. And those contracts, like QSS’s $20 million job with the U.S. Coast Guard for homeland security, count towards that 23 percent goal, he said.
In October, the ASBL ran a report, and found that eight of the top 10 small business contract awardees in 2008 were large businesses coded “small.” The ASBL further estimates that at least half of the $93 billion the government says is going to small businesses is actually being diverted to large businesses.
Officials with the federal Small Business Administration, which helps regulate federal contracting to small businesses, say the ASBL’s claims are exaggerated.
“We’re not going to stand for any large business that masquerades as a small business and tries to engage in any malfeasance,” Joe Jordan, the SBA’s associate administrator for government contracting, told Hispanic Business Magazine.
The problem, he said, has more to do with human error. For instance, he said, oftentimes a small business working on a small business contract gets consumed by a corporate giant, and the contracting officer forgets to go back into the database and re-code the business as “other than small.”
Also, after 2012, the problem should abate at least somewhat. That’s because, in July of 2007, a law passed forbidding large corporations from keeping the small business contracts of the small companies swallowed up in acquisitions. But the law grandfathered in, for five years, merger deals made prior to that date. This is what happened with QSS group, which, despite what the federal database says, no longer even exists as a company. (It is really just “Dell.”) That company’s five-year contract with the Coast Guard — which has been renewed every year — expires in late May, said Frank Islam, QSS’s founder and former owner, speaking to Hispanic Business Magazine.
Nonetheless, the phenomenon is a widely recognized problem, and reform efforts have thus far failed to catch hold. This owes in no small part to how the reform advocates themselves are divided. In short, the most vocal and visible activists — such as the ASBL — are out of synch with the most powerful and influential lawmakers putting forth their proposed solutions, such as Senators Landrieu and Snowe.
Ms. Landrieu and Ms. Snowe are the chair and ranking member of the Senate Committee on Small Business and Entrepreneurship.
When introducing their Small Business Contracting Improvements Act in February, Ms. Landrieu said it would create at least 163,000 jobs.
“In this past year, small businesses accounted for more than 85 percent of job losses,” she said on the floor. “When large businesses get new work they typically spread the work among existing employees. When small businesses get these contracts they must staff up to meet the increased demand.”
But where ASBL is often knocked for being too extreme, Sen. Landrieu’s effort is being criticized by some for being too mild.
Most notably, although the bill includes strong language about the illegality of large companies landing small-business contracts through misrepresentation, it exempts the Department of Defense, which by many accounts has the worst record on this matter.
“DOD is seriously challenged in its contracting to minority and small enterprises,” David Ferreira, vice president of government affairs for the U.S. Hispanic Chamber of Commerce, told HispanicBusiness Magazine. “They often rely on very large businesses and award them small-business contracts because of loopholes in the law.”
However, Mr. Ferreira said the U.S. Hispanic Chamber is pleased with some aspects of the bill, such as its focus on reducing a phenomenon known as contract bundling. This is when the federal government, for the sake of efficiency, will consolidate several contracts into one super-contract. This often precludes small businesses from competing because they lack the resources for such large jobs.
One particularly unsavory practice related to this is known as “bait and switch” sub-contracting. The term refers to when large corporations, under mandate from the feds, promise to hire, on bundled contracts, sub-contractors that are small businesses or minority-owned, and then renege after winning the job.
It’s a tactic with which Bill Miera, owner of a Hispanic-owned engineering and IT firm in New Mexico with 50 employees, is all too familiar.
For years, Mr. Miera’s Fiore Industries had been winning bids and working on two separate contracts with the U.S. Air Force, worth between $5 million and $10 million a year each.
About 10 years ago, the Air Force bundled one of the contracts into a mega-contract worth around $50 million — far too big for Miera’s firm to handle.
A Fortune 500 company put in for the bid, and in its proposal told the federal government it would be hiring a minority-owned small business — Fiore Industries — as a sub-contractor. (Mr. Miera declined to name the company, citing a reluctance to burn bridges in what is a relatively small industry.)
When the large company got the job, it dropped Fiore Industries and went with another firm, which was Caucasian-owned.
Mr. Miera, a former board member on the U.S. Hispanic Chamber, was forced to lay off five employees. A few years later, it happened again, with another Fortune 500 company, which went even further.
“They started hiring our people to work for them,” he told Hispanic Business Magazine. “They said, ‘If you want to keep your job, you’ve got to work for us.’”
As a result of these two bait-and-switch examples, Fiore Industries’s annual revenues dropped to about $5 million from $8.4 million. It lost about 10 of 50 employees.
Thanks in part to a contract with NASA, Fiore’s revenues have since climbed back to $6.5 million. But the company’s original plan was to be earning $50 million annually by now.
“That hurts, especially when you’ve done good work, and then lose your contract, but not because you’ve done a bad job or your prices are too high,” he told Hispanic Business Magazine.
Mr. Miera said the problem is that the law, as written, has no teeth to punish those who engage in such tactics.
“The large businesses know that,” he said.
For the entirety of the Bush administration, the ASBL, headed up by its colorful leader, Lloyd Chapman — a frequent pundit on cable news networks such as Fox, MSNBC and CNN — carped on the federal government on these issues. It also filed — and won — several lawsuits.
Mr. Chapman claims the Obama administration has been no better.
“I say it’s getting worse, because Obama has refused to close the existing loopholes that all Fortune 500 firms use to get small business contracts,” he told Hispanic Business Magazine.
Mr. Chapman is advocating the federal contracting bill sponsored by Rep. Johnson of Georgia. Mr. Chapman says he helped write the bill, and typically refers to it as his own.
“My bill has 20 co-sponsors,” he told HispanicBusiness Magazine. (They are mostly House Democrats, but the list does include two Republicans: Ralph Hall of Texas and Ileana Ros-Lehtinen of Florida.) “It will solve a 10-year-old contracting scandal, won’t increase the deficit and it’s permanent.”
Mr. Chapman and the ASBL are also highly critical of almost every other advocate on this issue. Senator Landrieu’s bill, they say, while well intentioned, gives recalcitrant corporate giants “a pass.” The U.S. Hispanic Chamber of Commerce is “backed by Fortune 500 companies.” But Mr. Chapman is particularly critical of U.S. Rep. Nydia Velazquez, (D-NY) — chair of the House Small Business Committee, whom he believes has done nothing to address the issue.
“She has chaired the small business committee for three or four years,” he said. “How come she hasn’t proposed legislation to address it?”
He added that Boeing, the world’s largest global aircraft manufacturer, is a major campaign donor to Velazquez and other small business committee members.
“My bill will take $100 million a year in federal small business contracts away from Boeing,” he said.
(Ms. Velazquez’s office did not provide a comment for this story, despite repeated requests from Hispanic Business Magazine.)
For its part, the federal SBA insists that it is working aggressively to fix the problems. By March, of the eight top awardees of small-business contracts that ASBL had highlighted in October, most had been re-coded as “small.”
Also, President Obama has proposed doubling the budget of the SBA, bringing it back to about $1 billion — which is where it was at the start of the Bush administration.
But despite their contention that the problem is most attributable to human error, SBA officials don’t deny that fraud is a factor.
“The U.S. Small Business Administration is making a tremendous effort to combat abuses in the federal contracting program,” SBA spokeswoman Hayley Matz told Hispanic Business Magazine in an email. “SBA recognizes the significant benefits of the program, but also acknowledges that instances of errors and potential abuse have occurred and resulted in negative consequences.”
Source: HispanicBusiness.com. All Rights Reserved – April 8, 2010 – by Rob Kuznia, Staff Writer
SBA to Revise Format for Small Business Procurement Scorecard
April 12, 2010 by cs
The U.S. Small Business Administration (SBA) is revising the format of the annual Small Business Procurement Scorecard to provide more clarity and transparency on the federal government’s performance in meeting its small business contracting goals. The revised scorecard will be based on an A through F letter grade system, as opposed to the previous red, yellow, green ratings.
“This revision to the Scorecard will provide greater clarity and transparency on how well each agency is doing in meeting its small business prime contracting goals,” said SBA Administrator Karen Mills. “Federal contracts provide critical opportunities for small businesses to grow and create jobs. This revision builds on our ongoing efforts to strengthen the integrity of the overall process for small business contracting, while also expanding opportunities for small businesses to compete for and win federal contracts.”
The revisions will appear when SBA issues its report later this year for federal contracting in fiscal year 2009. Over the past year, SBA has worked collaboratively with contracting and small business officials to develop the new system. The new system better reflects the unique needs of individual agencies while maintaining a focus on achieving the statutory small business contracting goals.
The overall small business prime contracting goals have been established by Congress to ensure that small businesses get their fair share of federal contracts. The government-wide goal for prime contracts to small businesses is 23 percent of total qualified contract dollars, with additional goals of 5 percent for small disadvantaged businesses, 5 percent for women-owned businesses, 3 percent for HUBZone small businesses, and 3 percent for service- disabled veteran-owned small businesses.
SBA negotiates individual goals for each agency, while ensuring that when combined they meet the overall statutory goals for the federal government.
SBA’s small business procurement goal, for example, is 67.05 percent. While Scorecards will measure subcontracting activity, that information is not factored into the determination of whether the federal government meets the statutory small business prime contracting goals.
The new scorecard holistically assesses an agency’s entire small business procurement performance. An agency’s overall grade will be comprised of three quantitative measures: prime contracts (80 percent), subcontracts (10 percent) and its progress plan for meeting goals (10 percent).
The letter grades for prime contracting and subcontracting will show an A+ for agencies that meet or exceed 120 percent of their goals, an A for those between 100 percent and 119 percent, a B for 90 to 99 percent, a C for 80 to
89 percent, a D for 70 to 79 percent and an F for less than 70 percent.
In last year’s Scorecard rating performance for the FY 2008 contracting year, small businesses won 21.5 percent of contract dollars, or about $93.3 billion out of a small business-eligible base of about $434 billion. More than half of all agencies met their individual goals. The small business eligible base for FY2009 was about $437 billion.
An example of the new Scorecard format can be accessed at http://www.sba.gov/idc/groups/public/documents/sba_homepage/score_card mock_up.pdf.
Release Date: April 9, 2009 – Release Number: 10-13
Big businesses winning contracts meant for small ones, groups charge
April 12, 2010 by cs
A new skirmish is emerging in an ugly, ongoing dispute between small business advocates and the federal government over its past — and perhaps continuing — practice of awarding small business contracts to Fortune 500 companies.
The American Small Business League in a lawsuit is accusing the General Services Administration of destroying information in a database that could help advocates trace the violations, and the league has asked a federal court in Northern California to force the government to restore the data, which spans 10 years, and to make the information public. A federal judge is set to decide on the request for a preliminary injunction by the end of April.
For years, the Petaluma, Calif.-based organization, which represents 100,000 businesses seeking federal contracts, has tried to hold the government accountable for federal regulations that require 23 percent of its contracts to be set aside for small businesses. The government has never met that goal, small business advocates say. Instead, many contracts have been awarded to companies such as Falls Church-based General Dynamics, Xerox and General Electric, advocates say, withholding billions of dollars annually from small businesses.
“I believe $10 billion a month in federal contracts that by law should be going to small businesses are actually going to Fortune 500 firms and to some of the biggest companies around the world,” said Lloyd Chapman, president of the ASBL.
“It’s devastating to small businesses,” Chapman said, adding that he’s talked with several that have closed because they couldn’t get contracts.
A spokeswoman for the GSA said her agency could not comment on the lawsuit.
At issue is whether large businesses deliberately defrauded the government and should be punished, as the advocates argue. The Small Business Administration denied that the contracts went to large companies intentionally. A spokesman said the awards resulted from a number of problems: companies mistakenly applying for contracts because they were unaware of the complex guidelines of what constitutes a small business; data entry errors; and agencies failing to update records after large companies, including General Dynamics, bought small businesses that earlier had received contracts.
“In nearly all the cases, it’s a data integrity issue, not awarding the contract falsely,” said SBA spokesman Jonathan Swain. “The integrity of this data is a top priority” for SBA Administrator Karen Mills.
The dispute centers on the government’s move last month to drop a field from its database that captured companies that identified themselves as small businesses. Advocates say they used that field to determine whether large companies had illegally misidentified themselves as small businesses to get the contracts. Companies that falsely represent themselves are subject to fines of up to $500,000 or a prison term of up to 10 years, though the government has rarely if ever imposed the penalties, advocates say.
A study issued by the SBA’s inspector general in February said 11 of 36 contracts it sampled were awarded to businesses reported “as small, but the contract file reflected that they were other than small.”
“We really don’t know how much business we’re looking at” that was lost, said Fred Valerino Sr., director and founder of Pevco, a 70-employee Baltimore company that sells pneumatic tubes, similar to the devices used in drive-through bank windows, that allow government hospitals to send items from one end of their building to another.
Valerino said government audits show that his competitor, a Swiss multinational corporation, received 147 sole-source contracts from the government that were destined for small businesses. “All we’re looking for is a fair share of the industry,” he added.
Last year, the SBA reported that the government had set a record in 2008 awarding federal contracts to small businesses. However, it said only 21.5 percent of the contracts went to these firms, still below the 23 percent requirement. Advocacy groups such as the National Association of Small Business Contractors said the shortfall represented $30 billion in lost revenue to the firms.
Swain of the SBA in part faulted an overwhelming crush of contracting transactions — 8 million — that government officials oversee each year. He said the government is training contracting officers to look for errors and increase quality control.
“We are periodically running anomaly reports to identify any contracts that are coded as having gone to a small business that might look questionable,” Swain said. “We’re sending those reports to the procurement officer in the agency that specifically awarded the contract to reconfirm the data.”
-by V. Dion Haynes, Washington Post Staff Writer – Monday, April 12, 2010; A15