The Issues: How and Why Large Corporations Receive the Majority of U.S. Federal Small Business Contracts Every Year

 

The Small Business Act and Federal Contracting

The U.S. Government is the world's largest buyer of goods and services. Every year, it reports spending more than $540 billion* on federal acquisition, a federal process known as procurement.To ensure economic justice and to create new jobs, Congress enacted the Small Business Act in 1953, which requires that 23 percent of all federal contracts are awarded to small businesses annualy.This is a landmark piece of economic legislation for the U.S., because small businesses create 90 percent of net new jobs, according to the U.S. Census Bureau.

*The federal acquisitions budget reported to the public does not include classified acqusitions or exemptions, so the total budget is not publicly known. However, many watchdog organizations including the ASBL speculate that the total federal acquisitions budget including classified projects is far more than $1 trillion a year.

BELOW IS AN EXPLANATION OF THE TOP ISSUES THAT FEDERAL SMALL BUSINESS CONTRACTORS FACE:


1. The Federal Government is trying to close the Small Business Administration and wind-down all federal small business programs


- The Small Business Act of 1953 states that 23 percent of all federal contracts must be awarded to small businesses. As the only federal agency with the duty to protect small business interests, the SBA has the legal mandate to ensure that small businesses receive their fair share of federal contracts. The elimination of the SBA would therefore remove the only federal agency that exists to protect the nation's more than 29 million small businesses. This would have a severely negative impact on the U.S. economy, because small businesses create 90 percent of net new jobs, according to the U.S. Census Bureau.

- On January 13, 2012, President Obama announced a proposal to consolidate 6 federal trade and commerce departments, including the SBA and the Dept. of Commerce. Although SBA administrator Karen Mills was elevated to the President's cabinet on the same day, the American Small Business League realizes that the proposed 'consolidation' would effectively eliminate the SBA and quickly remove Ms.Mills from the cabinet, should it be approved by Congress in April.

- The American Small Business League has been predicting that the Obama administration would attempt to close the SBA for more than 3 years, and was vocal in opposition to former President George W. Bush's similar attempt to close the SBA during his terms in office.

 
Recent News About the Proposal to Merge the SBA








more news stories

 

2. Fraud, Abuse and Loopholes in Federal Policy and Implementation Result in the Majority of Federal Small Business Contracts Being Illegaly Diverted to Large Corporations Every Year.


- The Small Business Act of 1953 mandates that every year the federal government must spend 23 percent of the total value of all federal prime contracts with small business.

- Every year, the U.S. Government reports achieving, or just narrowly missing the 23 percent small business procurement goal. However, the federal data dramatically overstates the true percentage of legitimate small business receiving federal contracts every year, because large and international corporations are included in the federal small business contracting data. This happens because of misguided SBA policies, lack of oversight by the SBA, as well as plain-and-simple fraud.

- Every year, the American Small Business League conducts a report of the Top 100 companies receiving federal small business contracts during a fiscal year, by listing the 100 companies that received the highest total dollar amount of federal small business contracts in that fiscal year.

- We estimate that the federal government diverts more than $100 billion a year in federal small business contracts to large and international corporations and then counts those contract awards to large businesses in annual federal small business procurement reports.


More About the top 100


 

3. Large Corporations and Federal Contracting Officers are not being punished for missing their small business procurement goals and are not being prosecuted for fraudulent contracting.

-Existing federal laws known as "Liquidated Damages" clauses establish penalties for prime contractors when they are non-compliant with small business goals. Becuase this law has never been enforced by the SBA and Department of Justice, most prime contractors never achieve the small business goals required in their federal contracts.

-Current federal law establishes that misrepresenting the size of a firm in order to illegaly receive federal contracts and subcontracts is a felony with penalties of up to 10 years in prison, a fine up to $500,000, cancellation of all contracts and debarment from selling to the government. Federal policy should require the SBA to respond to any protest against any firm that misrepresents its size, regardless of whether or not the contract is a small business set-aside. Section 16(d) of federal code makes no differentiation as to the type of the contract; therefore current SBA policy is illegal and does not address the magnitude of the problem.


Video: ASBL President Lloyd Chapman with CNN's Lou Dobbs


 

4. The Small Business Administration exempts small businesses from over $100 billion worth of federal contracts and the GSA exempts small businesses from eligibilty for over $40 billion worth of federal contracts each year.

-The SBA has a policy of excluding small businesses from eligibilty for $100 billion worth of federal contracts from the acquisitions budget, which violates the congressional intent of the Small Business Act, which clearly states that small businesses must receive 23 percent of 'total federal prime contracts'.

-Federal regulators exempt GSA Schedule contracts from small business set-aside, despite congressional mandate in the Small Business Act, which states that all federal acquisitions in the simplified acqusition threshold (contracts valued between $3,000 and $150,000) must be set-aside for small businesses. The SBA and FAR council essentially repealed this valuable piece of legislation by exempting all acquisitions on the GSA schedule from small business set-asides.

More About Exemptions


The ASBL is currently circulating a comment in petition of a proposed interim rule that would amend the Federal Acquisition Regulation (FAR) to make simplified acquisitions (those between $3,000 and $150,000) on GSA Schedules at the discretion of federal agencie.

Our organization wants to begin by pointing out that Congress neverauthorized any procurement program to be exempt from the unambiguous intent of the Small Business Act, which clearly states that ‘simplified acquisitions,’ those between $3,000 and $150,000, shall be set aside for small business concerns.

Follow this link to access a generic copy of the comment. Feel free to use any of our information or wording when submitting your own comment here.

 

5. By signing the 2012 National Defense Authorization Act, President Obama re-authorized for three years the Comprehensive Subcontracting Plan Test Program, which exempts large defense contractors from required subcontracting reporting as well as any penalty of non-compliance with the Small Business Act.

-Originally established as a test program in 1990, the CSPTP is a Department of Defense program that allows major prime defense contractors to avoid complying with their small business goals by eliminating specific small business reporting requirements for individual contracts. It also exempts these large defense firms from the "liquidated damages" clause mentioned before.

-The American Small Business League has long maintained that the CSPTP allows large defense contractors to circumvent the Small Business Act, which requires that 23 percent of all federal contracts (including subcontracts).

In October 2010, five members of Congress sent a letter ot the Government Accountability Office, demanding an investigation into the CSPTP program's effectiveness. Their concern was that the 21-year-old program has never been evaluated for its effectiveness. As of yet (Feb. 2012), their request for an investigation has not been honored.

More About the CSPTP

Click here to view a pdf of the letter that five members of Congress sent to the GAO.

Click here read the ASBL's press release about the Obama administration's reauthorization of the program.

 

6. Alaska Native Corporations receive special preference that has led to ANCs acquiring a monopoly on federal small business contracts, especially contracts meant for all tribal firms [8(a) contracts], and contracts for small disadvantaged businesses.

From the 1980s to the early 1990s, Congress passed a series of laws that made Alaska Native Coporations eligible for federal contracting opportunities as socially and economically disadvantaged minority-owned businesses, including the SBA's 8(a) program. These laws also gave ANCs contracting preferences that no other socio-economic demographic posseses, such as the ability to receive no-bid federal contracts of unlimited value, remain in the 8(a) program indefinitely, and have multiple 8(a) subsidiaries.

By now, the regulatory and legislative preferences that ANCs posses has allowed ANCs to manipulate the 8(a) and SBD programs for their own overwhelming success, and pass their profits to their non-Native executive and non-Native subcontractors. A report conducted in 2009 by Senator Claire McCaskill stated that,"Alaska Native Corporations are multi-million or billion dollar corporations that are now among the largest federal contractors. Although ANCs provide some benefit to their shareholders, those benefits may not be in proportion to the potential for waste, fraud and abuse created by the ANCs contracting preferences."

Other findings in Senator McCaskill's report showed:

-ANCs are currently among the top 100 largest federal contractors.

-The majority of ANCs are big businesses.

-Alaska Native Corporations "have taken advantage of the exemption from size requirements to create multiple 8(a) subsidiaries." Between 2000 and 2008, the 19 ANCs surveyed by McCaskill's staff enrolled 248 subsidiaries, joint ventures or partnerships in the 8(a) program.

-Alaska Native Corporations may be passing work through to subcontractors, many of which are large, non-Native companies.

-ANCs employ a small percentage of shareholders. The 2009 study from Senator McCaskill found that "on average, nearly 95% of ANC employees are not ANC shareholders."

-Alaska Native Corporations "have relied heavily on highly-paid, non-Native executives."

 

Recent news about ANCs and 8(a) contracting

Click here to view a breakdown of the top 100 8(a) contractors in 2011, and analysis of ANCs within that data.

Click here read the ASBL's latest press release about ANCs and federal contracting.

 

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