Today the U.S. Small Business Administration (SBA) and Google announced a new partnership and unveiled “Tools for Online Success,” an array of online resources and training designed to help small business owners harness technology to grow their businesses. The “Tools for Online Success” site (http://www.google.com/help/sba) features tutorials, video testimonials, and tips from savvy small business people who have leveraged the web to become more efficient, more cost-effective, and more successful.
“The SBA is pleased to partner with Google to put these important tools in the hands of small businesses across the country,” said SBA Administrator Karen Mills. “As the web evolves and consumers adapt accordingly, we know that more customers are finding traditional ‘Main Street’ businesses online. With these tools for online success, we can ensure these small businesses reach new markets and customers so they can continue to create jobs.”
“One fifth of searches on Google are related to location, which shows that people are looking to the Internet to make decisions about where to go and what to do in their daily lives,” said John Hanke, Vice President of Product Management, Google. “We want to connect our users with the businesses that provide the goods and services they need, but the first step is for those businesses to have an online presence. We’re excited to team up with the SBA to make that process easier for business owners across the country.”
Visit the “Tools for Online Success” website for a full run-down, but here are a few easy tips all small business owners should be using:
• Establish your online presence. One out of five searches on Google are related to location. Most local online listings such as Google Places are free, and if your business doesn’t have a website, there are ready-made site templates and free hosting services that make establishing an online presence easy.
• Use free marketing to reach customers. You can build a fan base with free services like YouTube, Facebook and Twitter that keep your customers in-the- know about new products or specials and aware of promotions. These services are great “word of mouth” platforms – where a customer following you might tell their friends about your business.
• Know your customers. Easy to use web analytics tools can tell you a lot about your customers by analyzing what search term brought them to your website or what they look at while they are there. This information can help you make smart decisions about what you feature and what search terms you should run search ads on.
• Keep an eye on the latest trends. The growing popularity of smartphones means that more and more customers are searching for local information on the go. This makes it all the more important that a business’s online presence be accurate and up-to-date. You can link to your menu, give users driving directions, and even post digital coupons.
It’s happened again. For the third time in as many years, a watchdog found that con artists and ineligible companies gamed the government’s procurement system to fraudulently win small business contracts, this time in a program designed to assist economically disadvantaged individuals.
In a report released on Friday to the House Small Business Committee, the Government Accountability Office identified 14 firms that received set-aside or sole-source 8(a) contracts worth a combined $325 million through fraud or abuse. All together, these firms won an additional $1.2 billion in contracts since entering the 8(a) program, including $17 million in Recovery Act awards.
“The 8(a) program needs to strengthen its fraud prevention, detection, monitoring and investigative controls to minimize its vulnerability to fraud and abuse,” the report said.
Investigators found companies representing themselves as disadvantaged despite owning yachts, luxury automobiles and millions of dollars in ocean-front property. The maximum threshold for entering the 8(a) Business Development Program is $250,000 in annual net worth, excluding the applicant’s ownership interest of the company and primary residence. Other executives misrepresented their ethnicity or used a pass-through company to continue winning contracts long after graduating from the program, GAO found.
Fraud in the Small Business Administration’s contracting programs is nothing new. In 2008, GAO created bogus companies to win small business contracts in the Historically Underutilized Business Zone program. Last November, the watchdog reported on extensive fraud in the veteran-owned service-disabled small business contracting program.
“Fraud has been a persistent problem with all of the SBA’s contracting programs and it is clear from this report, as well as previous work done by the committee and GAO, that SBA needs to do a better job of ensuring these initiatives work as intended,” said Rep. Nydia Velazquez, D-N.Y., chairwoman of the House Small Business Committee, in a statement to Government Executive.
To participate in the 8(a) program, an applicant must be considered a small business, be unconditionally owned and controlled by a socially or economically disadvantaged individual, show the potential for success and be of “good character.” Companies must graduate from the program within nine years.
But GAO found the program is easy to manipulate. For example, a Toms River, N.J., construction company owner reported his adjusted net worth to be $217,000 when it was actually more than $800,000, according to the watchdog. Nonetheless, the firm won $11.2 million in 8(a) contracts from the Defense and Homeland Security departments. The company withdrew from the 8(a) program in September 2009 as a result of GAO’s investigation.
In another case, investigators found that a roofing and construction company in Hyattsville, Md., with $48.3 million in contracts was acting as a pass-through for a graduated firm. Both firms were actually run by a white father-and-son team; the 8(a) program is designed for minority-owned firms. The two businesses essentially were operating as one company, the report said, sharing top executives, staff, administrative offices and warehouse space.
The fraud became apparent to investigators during a visit to the business. “The white vice president disclosed much of the operational knowledge of the firm during the site visit, while the black president rarely spoke,” GAO said. “The white executives both work out of large suites while the black president sits in a small room located at the back of the building.”
The report identified several other instances in which companies established shell companies that would win the award, but not perform any of the work. Some executives hid their lavish lifestyle from SBA, including the president of an information technology firm in Bethesda, Md., who owns a $2.5 million house on a private island in Miami, a $450,000 yacht and a $200,000 Lamborghini, investigators found.
GAO brought three cases to SBA, but the agency failed to take action, allowing the companies to continue winning contracts. For instance, an IT firm in Fairfax, Va., should have been removed from the program after its president failed to disclose $4.2 million in personal property, the report found.
“We brought the unreported assets to the attention of SBA,” the report said. “However, once SBA learned that the firm was scheduled to graduate in eight months, it no longer wanted to investigate the firm’s actions. Eleven days later, the firm was awarded a $1.7 million contract.”
Even firms that voluntarily disclosed ineligibility remained in the program. The president of a human resources firm in Alexandria, Va., told SBA she had an annual salary of nearly $750,000– well above the threshold to remain in the program — yet officials allowed the company to stay in the program for another five years.
In response to the findings, SBA conceded that its fraud prevention systems needed improvement. “Although the 8(a) business development program has enjoyed numerous successes, we recognize that there are weaknesses and areas that require increased monitoring and oversight,” wrote Joseph Jordan, associate administrator for government contracting and business development.
The agency did have a measure of success in screening out bogus applications GAO submitted. In three cases, SBA discovered questionable assets and income with the fake companies. But in another instance, investigators obtained 8(a) certification for a phony firm using fabricated documents.
“Certification of GAO’s bogus firm shows vulnerabilities in the process such as the lack of any face-to-face contact that could allow ineligible individuals or pass-through companies to enter the program,” the report said.
According to SBA, in fiscal 2008, there were 9,462 firms certified to participate in the 8(a) program, and about half had at least one active sole-source or set-aside contract. Agencies awarded more than $16 billion in 8(a) contracts that year, allowing the government to exceed its goal of giving 5 percent of all contracts to small disadvantaged businesses.
In October, SBA recommended major changes to the eligibility and income requirements of the 8(a) program. The rule is expected to be finalized by June.
SBA spokesman Michael Stamler said Friday that the proposed regulatory changes would address “several of the recommendations made by the GAO, and will strengthen the program and maximize its benefits for eligible small businesses.” He added SBA is “taking further steps, in line with GAO recommendations, to prevent fraud, waste and abuse.”
- By Robert Brodsky – govexec.com – April 30, 2010
Small business designation under the U.S. Small Business Administration can be a lightning rod for success for companies owned by Alaska Native tribes and corporations, which enjoy privileges under the program not afforded to other participants. In particular, only Native-owned businesses have the ability to land sole-source, no-bid, unlimited-value contracts with the federal government — a fact that raises some ire among those who oppose the preferential structure.
Critics claim Native corporations too easily secure big money contracts without doing enough to improve life in their shareholders’ hometowns — a founding ethic of the Alaska Native Claims Settlement Act. Plus, they say, unscrupulous outside interests can use the Native corporations as “front companies” to gain access to big contracts from which they might otherwise be excluded, and further direct work to subcontractors in which they have a financial stake. The worst case scenario? Money and jobs are passed on to entities with no Native ties at all.
Supporters counter that the potential for waste or abuse is not a legitimate excuse to thwart opportunity for Natives. Yet changes are already under way in response to demands for increased public accountability. The SBA has proposed requiring Alaska Native corporations to demonstrate how their contracts benefit their communities, and the Department of Defense — the main source of contracting opportunities — is requiring its officers to justify sole-source awards in excess of $20 million, which are available only to Native-owned corporations. No-bid awards for all other 8(a) businesses are restricted to $5.5 million or less.
Alaskans are resisting the change on both fronts. Many Alaska Native corporations have urged the SBA to rethink some of its intended reforms, and U.S. Senator Lisa Murkowski intends to try to repeal the new DOD reporting requirement. Murkowski says more paperwork will cause a chilling effect on awards, and more red tape won’t necessarily improve transparency. Until she can get the regulation repealed, she’s encouraging Secretary of Defense Robert Gates to proceed cautiously and with input from tribes in implementing the DOD’s new rules. Murkowski says she’s concerned that increased reporting requirements will result in lost opportunities for Native-owned firms.
She also suspects so-called reforms are small steps in a larger, more cutthroat agenda.
“I think it is the intention of some (people) to pull the plug on the 8(a) program for American Indian, Native Alaska and Native Hawaiians because they are demonstrating a level of success as they are pursuing these contracts,” Murkowski said in a phone interview from her Washington, D.C., office. “Their shareholders are benefitting and there are others (small businesses) who are realizing they don’t have the ability to do the same, and there is competition out there.”
Murkowski also believes the preferential treatment Alaska Native corporations receive is a good thing — and equitable in its own way.
“If it was just for Alaska Natives I would say that it is not fair. But it is (open) to all Native Americans,” she said. “There is a trust responsibility that this country owes to our Native Americans. There is a unique political relationship that exists.”
Sarah Lukin, executive director of the Native American Contractors Association and a shareholder in two Alaska Native corporations, agrees.
“Native enterprises are not like an individually owned 8(a) company,” Lukin said. “Native corporations were formed in perpetuity to provide economic, social and cultural benefits to an entire community. How can an individual disadvantaged company or person have equal rights to a social enterprise that’s serving an entire community of disadvantaged people?”
For Lukin, the issue is far more complicated than trying to root out government waste. Native country as it relates to government contracting has the challenging position of colliding with 11 different congressional committees that have jurisdiction over Native participation in governments, along with falling under three major overriding national policies: federal Indian policy, small business policy and federal procurement policy, Lukin said. And within that framework, there are government “contract purists” — people who believe the only way to do contracting is via full and open competition — who “do not believe that social issues should be addressed through government procurement,” Lukin said.
But carried to the extreme, that philosophy will favor the “big boys” and shut out the very people — minorities — for whom the 8(a) program is designed to assist, Lukin said.
In search of accountability
One of the loudest critics is U.S. Sen. Claire McCaskill, D-Mo. In her role on the Subcommittee on Contracting and Oversight, McCaskill has sought to close federal loopholes she believes have led to waste and abuse in government contracting, with the rules favoring Alaska Native corporations squarely in her sights. In October, her efforts paid off when she won tougher oversight of defense contracting in the 2010 National Defense Authorization Act. McCaskill claimed victory for making the process “substantially more difficult to award sole-source contracts” over $20 million, effectively closing a “loophole in government contracting” that exclusively benefitted Alaska Native Corporations.
In summer 2009, Debra Ritt, Assistant Inspector General for Auditing for the SBA, testified before McCaskill’s committee that sole-source awards do have upsides — they are quick, easy and a legal way for federal agencies to meet small business goals. But she also noted that “reports by OIG (Office if the Inspector General) and GAO (Government Accountability Office) have shown that noncompetitive contracts have been misused, resulting in wasted taxpayer resources, poor contractor performance, and inadequate accountability for results.”
A review of comments submitted to the SBA about the proposed changes shows many Native corporations support the agency’s efforts to “mitigate abuse” and “perceived abuse.” They welcome including Native Hawaiians among the Native-owned businesses with access to sole source contracts of unlimited value. They agree that mandatory audits should occur on contracts over $10 million, and they stress that the SBA will require more funding and staffing to fulfill its more strenuous oversight goals. But there are areas where suggested changes have fueled alarm bells. Limits as to how business partnerships may be formed and the length of time Native corporations may stay in the 8(a) program generated comments about “drastic” effects and “catastrophic consequences.” A proposed rule to report yearly on how benefits from 8(a) participation is reaching Native people prompted terms like “onerous” and “burdensome and unreasonable.” Many are also critical of government value judgments about whether the corporations are fulfilling their missions.
“It’s a lot more than just saying how many jobs did you provide to the Native community and how much did you pay in dividends,” Lukin explained. “All of us provide unique benefits. One may focus on cultural aspects while another may fund substance abuse while another may focus on dividends.”
There is also trepidation about offering too much information. The history of the Native community is if you start reporting on something, you are only a step away from government takeover, Lukin said. Where a corporation or tribe may think language preservation is a legitimate benefit, the government may decide job training is more paramount and direct profits to instead be spent in that way. Lukin is also concerned that corporations, villages and tribes vary so greatly in size and need that there is no measurable “benefit” that can apply to all situations. Smaller companies can’t do as much as big ones, and forcing a show of tangible benefits could dissuade reinvestment that would promote company growth, hurting companies on the rise that might one day have the ability to share more with shareholders.
Lukin is convinced the SBA changes will be implemented by year’s end. Whatever the outcome, Native entities will continue to work within the rules and to strive for accountability and transparency, she said. Still, Native corporations argue that they can weed out bad managers and corruption on their own, and question why they should be subject to more stringent performance guidelines than other American companies.
“Very frankly, Native enterprises are an easy target,” Lukin said. “If you are looking at government contracting reform, it is a lot easier to pick on Native enterprises then to deal with broader government procurement reform.”
The head of the Small Business Administration today said the agency has cracked down on companies posing as if they were owned by service-disabled veterans, a scheme uncovered by a recent investigation.
The Government Accountability Office exposed fraud in several of SBA’s small-business programs, including the program that sets aside contracts for small companies owned by service-disabled veterans.
GAO said at least 10 fake service-disabled, veteran-owned small businesses had swindled roughly $100 million from SBA’s set-aside contracts. For example, one company wasn’t owned by a service-disabled veteran, and another subcontracted all of its work to a large foreign company, GAO said in November.
SBA Administrator Karen Mills today said SBA has investigated the 10 companies and is looking to prosecute them. For other imposters, Mills said SBA will be more aggressive in suspending and debarring companies from receiving federal contracts.
- by Matthew Weigelt – Apr 21, 2010 – Federal Computer Week
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.
WASHINGTON – President Barack Obama signed legislation on Thursday, Apr. 15, 2010, providing $80 million in additional funding to continue important enhancements in the U.S. Small Business Administration’s two key small business loan programs.
The enhancements, first made available under the American Recovery and Reinvestment Act, include a higher guarantee on some SBA-backed loans and small business fee relief.
The SBA estimates the $80 million will support about $2.8 billion in small business lending under the 7(a) and 504 programs.
“Small businesses across the country have been able to secure critical financing as a result of the Recovery Act loan provisions and the continued interim funding we’ve received for the program,” said SBA Administrator Karen Mills. “The increased guarantees and reduced fees on SBA loans have generated more than $25 billion in new loans to small business owners and brought more than 1,200 lenders back to SBA loan programs. In fact, the first two quarters of the current fiscal year have been our best two opening quarters ever for the 7(a) program, with more than $7 billion in guaranteed loans. These programs have been successful in helping jump-start our economy, which is why we will continue to work with Congress on a longer term extension of the increased guarantee and reduced fees.
“We also know that small businesses could greatly benefit from the additional tools the President has proposed, including higher SBA loan limits and refinancing for commercial property mortgages, which could help thousands of small businesses avoid potential foreclosure. Small businesses need these improvements to ensure their access to the capital they need to drive economic growth and create jobs in communities all across the country.”
As part of the Recovery Act enacted on Feb. 17, 2009, SBA received $730 million to help small businesses, including $375 million to increase the SBA guarantee on 7(a) loans to 90 percent and to reduce borrower fees on most 7(a) and 504 loans. The funds for these programs were exhausted on Nov. 23, 2009, and an additional $125 million was provided in December. Those funds were exhausted in late February, 2010, and an additional $60 million was provided subsequently. SBA was authorized for an additional $40 million in late March.
Under the new extension SBA may continue to reduce loan fees in its 7(a) and 504 programs and to provide higher guarantee levels on 7(a) loans through May 2010, or until the funds provided under the bill are exhausted.
This extension has no effect on the continued availability of financing under other SBA Recovery Act programs, including SBA’s America’s Recovery Capital (ARC) loan program and the agency’s Microloan program. Recovery Act funding still remains available for both of those programs.
The Georgia Minority Business Enterprise Center (GMBEC), a unit of Georgia Tech’s Enterprise Innovation Institute, is hosting a discussion on Tuesday, April 20th regarding the new federal contracting set-aside program for women-owned businesses.
This event is free but advance registration is requiredin order to attend. Registration may be accomplished by clicking here.
The event is being held in the Hodges Room, 3rd floor, 75 – 5th St., NW, Atlanta, GA 30308 from 1:00 until 3:00 p.m.
Panelists include Terri Dennison of the Small Busines Administration and Donna Ennis of the GMBEC.
To learn more about this new Federal contracting program, click here.
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.
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
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.