By Lloyd Chapman
October 3, 2010
In 2003, the Government Accountability Office uncovered more than 5,300 large businesses that were receiving federal small-business contracts. An analysis of the most recent small-business data by the American Small Business League (ASBL) found that of the top 100 recipients of federal small-business contracts, 60 were actually large businesses. Those large businesses received 64.5 percent of the contract dollars awarded to the top 100 companies.
For the last seven years, the Small Business Administration has persistently argued that the diversion of billions of dollars in federal small-business contracts to many of the largest companies in the world is simply the result of "miscoding," "computer glitches" and "simple human error."
The SBA Office of Inspector General has a different explanation. In a March 2005 report, the inspector general found large businesses had received small-business contracts by making "false certifications" and "improper certifications." A similar investigation by the SBA Office of Advocacy found large businesses had received small-business contracts as a result of "vendor deception."
Visualize a federal database of suppliers with several dozen fields. One of those fields signifies whether a firm is a small business or a large business. Section 16(d) of the Small Business Act prescribes a penalty of up to 10 years in prison and/or a fine of not more than $500,000 for any firm or individual that misrepresents a business concern's status as a small business to illegally receive federal small-business contracts.
Logically, a 10-year prison term would tend to dramatically improve the accuracy of this field. Even without the threat of a 10-year prison term, the error rate on the business status field should not be any higher or lower than any of the other fields within the government's contract database.
Without any challenge from the media, or Congress, SBA has consistently maintained that the error rate on this field is thousands of times higher than any other field. More astonishing, SBA claims that when federal contracting officials and government suppliers "miscode" this field, 100 percent of the time they "miscode" the field in a way that reports small-business contracts to large businesses.
This "miscoding" dramatically misrepresents the government's compliance with the congressionally mandated 23 percent small-business contracting goal, and diverts more than $100 billion a year in small-business contracts to large businesses.
Random errors in a field with just two possible answers would follow the same pattern of flipping a coin. Half the time contracts to large businesses would be reported as small-business awards, and half the time awards to small businesses would be reported as large-business awards. Random errors would cancel each other out.
SBA's "miscoding" excuse for billions of dollars a year in federal small-business contracts flowing into the hands of corporate giants around the world as a result of random errors is statistically impossible. It is ludicrous and absurd. I find it unimaginable that Congress and the media have continued to accept SBA's obvious attempt to cover up the illegal diversion of federal small-business contracts to Fortune 1000 firms and thousands of large businesses worldwide.
Since SBA's miscoding excuse has no basis in statistical reality, what is the real reason corporate giants have continued to hijack the majority of federal small-business contracts year after year? I think one correct answer is felony federal contracting fraud, "false certifications," "improper certifications" and "vendor deception." The other answer is collusion to commit felony federal contracting fraud.
Unless you believe the SBA can flip a coin thousands of time a day, year after year and make it come up heads every time, there must be another answer. In reality, the SBA, the Pentagon, the General Services Administration and virtually every other federal agency cooperate in a governmentwide scheme to cheat America's 27 million small businesses out of the 23 percent of all federal contracts required by federal law.
Ending the diversion of federal small-business contracts to corporate giants would put more money into the middle-class economy than anything anyone has proposed.
Lloyd Chapman is president of the American Small Business League, an advocacy group based in Petaluma, Calif.