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In the SBA's Face

By Richard Larsen
Hispanic Business Journal
December 16, 2010

The spoils are hug--$230 billion in Small Business Administration funds that could be going to small businesses not as loans, but as contracts for goods and services. Yet, large corporations have eaten up 80 percent of the money supposedly earmarked for small businesses the ASBL says.

A bit confused? Scratching your head and wondering how that can be?

Former Sen. Sam Nunn of Georgia once quipped, "The definition of a small business is a business that couldn't afford a lobbyist." That's exactly what Lloyd Chapman found out more than 20 years ago when he came to California after a stint in the Texas Controller's office. He went into the computer industry, but quickly noticed problems in the contracting program for small businesses.

By law, 23 percent of government contracting must go to small businesses. What Mr. Chapman learned as he looked into the problems astounded him. He decided to do something about it and formed the American Small Business League with the goal of stopping the diversion of funds from small businesses--becoming, in effect, a lobbyist for the interests of small business.

Large and Small at the Same Time

The ASBL, based in Petaluma, Calif., takes credit for instigating the first federal investigation into the diversion of money from small businesses. The General Accounting Office (now known as the Government Accountability Office) found in 2003 that government regulations and inaccurate information in databases were the culprits.

Testifying before Congress in May 2003, David E. Cooper, GAO director of acquisitions and sourcing management, told the House Committee on Small Business that the GAO had identified 49,366 firms receiving contracts as small businesses in fiscal year 2001. More than 5,300 of these firms also had received contracts as a large business. The GAO's tally--those 5,300-plus companies received $13.8 billion in contracts as small businesses and almost $60.6 billion in contracts as large businesses.

How can a company be both large and small at the same time?

"The law says that when a large business buys a small business, the small business can keep its status as a small business," Mr. Chapman said during a phone interview.

For example, Company A, with 20,000 employees and $8 billion a year in revenues, purchases Company B, with 15 employees and several hundred thousand dollars in revenues. Because of federal regulations, Mr. Chapman said, Company B can keep its small business status for up to 20 years.

"That means the government could buy a plane through the small business and be seen to be using a small business," Mr. Chapman said, even if the big company benefits the most.

Problem Seen, Not Fixed

Since the 2003 GAO report, there have more than 30 federal investigations that, the ASBL says, "have found billions of dollars in fraud, abuse, loopholes and a lack of oversight in federal small-business contracting programs."

Yet, the problem persists. An ASBL data analysis of small-business contracting in 2008 found that the top 10 firms received contracts worth $3.8 billion. Of those 10, eight were large firms and received $3.3 billion. In addition, 60 of the top 100 contracts went to large firms, which received $9.7 billion out of $15.1 billion in contracts.

With agencies such as the GAO, the Department of Interior's Inspector General and even the SBA's Inspector General finding fault, why aren't problems getting fixed?

"Washington runs on money and K Street lobbyists," Mr. Chapman said. "In addition, the Pentagon and the aerospace industry have the motivation and the money to stop legislation aimed at helping small business."

One such piece of legislation is House Resolution 2568, drafted by the ASBL and introduced into the House on May 21, 2009, by Rep. Hank Johnson, D-Ga. Called the Fairness and Transparency in Contracting Act of 2009, HR2568 would have refined the definition of small business in the Small Business Act as "independently owned."

Th e bill had 26 co-sponsors. It was referred to House Oversight and Government Reform committee, and to the Subcommittee on Contracting and Technology of the House Small Business Committee. No other action was taken on the bill.

Mr. Chapman said the bill would be reintroduced. A check of the midterm election results showed that Rep. Johnson was re-elected, so Mr. Chapman will not have to seek a new sponsor.

Making Headway

Making sure the federal government meets its obligation to spend 23 percent of its contracting with small businesses requires tenacity, commitment and outspokenness--all of which Mr. Chapman has in abundance.

"I have done more to lobby for small business than every group in the nation combined," Mr. Chapman said.

He and the ASBL list accomplishments as getting 600 large businesses removed from the SBA's database of small businesses; reduced SBA's value-added reseller size standard from 500 to 150 for information technology firms; and prompted 25 investigations on large
companies getting small-business contracts.

In addition, he and the ASBL have filed seven lawsuits against the SBA, six of which they won. The seventh lawsuit had the ASBL seeking the phone records of SBA Press Officer Chief Mike Stamler. The 9th Circuit Court of Appeals ruled against the ASBL. Mr. Chapman said he and the ABSL would ask the 9th Circuit Court to reconsider its ruling. The ABSL is represented by Robert E. Belshaw of Gutierrez & Associates in San Francisco.

Looking Forward

Much work remains to be done, Mr. Chapman said. He wants the ASBL to force the SBA and the Justice Department to rigorously investigate fraud and misrepresentation in small-business contracting. Current law that calls for those guilty of fraud to be fined $500,000 and barred from federal contracts needs to be enforced. And, he and the ASBL will seek to eliminate the loophole that allows a large corporation to buy a small business and use the small-business status to gain federal contracts.

The ASBL reaches about 100,000 businesses through a network of 5,000 local chambers of commerce. ASBL operates on a combination of dues and donations. The lawsuits filed are always done with the stipulation that, if the ASBL wins, the losing side pays the legal bills.

If the ASBL succeeds and small businesses finally get their fair share of SBA contracts, how would Mr. Chapman feel?

"I would be thrilled," he said. "That would be the largest stimulus ever."

Source: http://www.hispanicbusiness.com/news/2010/12/16/in_the_sbas_face.htm



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