By Tosin Mfon
Kiplinger Business Resource Center
June 20, 2008
Pressure to fix the small business set-aside program is mounting. Half the federal contracts designated for small businesses in 2005 and 2006, about $100 billion a year, went to big firms, including multinational corporations. That's according to documents the Small Business Administration (SBA) handed over to the American Small Business League (ASBL) under court order this month.
Stricter controls are likely next year. Certification procedures have already been adjusted once by the SBA to cut down on abuses, but Congress and small business groups want the agency to do a lot more.
Specifics of widespread abuses of the program were revealed under the May 19 order of a California federal judge, the fourth legal victory the small business league has garnered in federal court against the SBA.
In May 2005, the ASBL filed suit against the SBA, demanding to see an agency report that detailed large businesses receiving over $2 billion in small business contracts through a practice termed "vendor deception." According to the ASBL, SBA officials had argued the report was exempt from the Freedom of Information Act (FOIA), but the court ruled otherwise.
To spur economic growth and aid start-ups, the set-aside program awards 23 percent of federal contracts to small businesses, with a sub-set designated for specific groups like firms owned by women and disabled veterans. The contracts range in value from a few hundred dollars to as much as $100 million with life spans of a few months all the way up to several decades.
April 2006 was the culmination of an 18-month legal battle between the parties. ASBL wanted documents that detailed hundreds of small business protests against large companies that allegedly hid their true size to receive set-asides.
The SBA dismissed protests against lax enforcement and argued that information about it was exempt from FOIA standards. The court ruled otherwise, and resulting information showed the agency dismissing complaints about violations of size standards to 102 small businesses over an 18-month period.
The SBA was hauled back into court in December 2006, when the ASBL demanded the name of a large firm recommended for debarment from federal contracts because it had consistently received set-aside contracts, even though it was far too large to qualify. Under court order, the SBA revealed that GTSI Corp., headquartered in Chantilly, Va., had outgrown its qualifications as a small business in 1998, but continued to nab some of the SBA's largest contracts for years after.
SBA officials say the recertification program is a success at blocking loopholes. The legacy of outgoing SBA president Steve Preston, it requires businesses to inform government procurement officers of mergers that disqualify them from set-asides within 30 days of the triggering event. Critics counter that firms still have five years to let existing contracts run out, even after their size disqualifies them from future contracts.
Both the House Small Business Committee and the Senate Committee on Small Business and Entrepreneurship have endorsed annual recertification that would require businesses to prove their size status every year. And the ASBL says it will return to court to publicize that reform is needed.