By Bennett J. Loudon
Democrat & Chronicle
October 21, 2013
Health has annual revenues of more than $2 billion and 7,300 employees. Harris Corp. does about $800 million and has
about 1,700 workers. And ITT Space Systems
has almost $8 billion with more than 39,000 employees.
That information, from a database of federal contracts,
depicts three large enterprises, by most standards. Yet a Democrat and
Chronicle examination of that data also shows those companies won nearly
$2.9 million in federal contracts for the Rochester area over the past five
years while being designated as small businesses.
Officials at those businesses had no explanation for the small
business designation, but said they did not seek it.
Small Business Administration
officials offered several possible explanations for a seemingly large company
being classified as a small business, while not addressing any specific
contracts. But they also have acknowledged problems with several programs
designed to help small businesses.
In Rochester and elsewhere, small businesses are the economic
engines that fuel job growth and cushion job losses from larger firms. About 97
percent of the 23,500 businesses in the greater Rochester area have 50 or fewer
workers, according to the U.S. Census Bureau.
"Federal contracting with small businesses remains a
win-win," John Shoraka, SBA's associate administrator for government contracting
and business development, wrote in a July blog post. "Small businesses get
the revenue they need to grow their revenues and create jobs. Meanwhile, the
federal government gets the chance to work with some of the most responsive,
innovative and nimble companies in the U.S."
About 600 companies with Rochester addresses have been awarded
about $5.8 billion in federal contracts over the past five years, the Federal Procurement Data System (FPDS)
online database shows.
That total includes about $292 million awarded to about 460
vendors classified as small businesses.
Some, like T&T
Materials, a metals dealer at 1225 Ridgeway Ave., clearly qualify.
T&T has four full-time employees and annual revenue of
about $2.5 million. Over the past five years, the company has been awarded
almost $9 million in federal contracts as a small business and about $27,000
not as a small business. Most of its work is for the Defense Department.
But many of the Rochester companies doing work for the federal
government over the past five years with — and without — the small businesses
designation don't fit as easily into both categories.
Harris tops the list with about $4.8 billion, a total that
includes about $2.4 million in contracts as a small business.
ITT Space Systems was second with about $153 million in
contracts, including about $53,000 in small business contracts.
The $18.4 million total for Eastman
Kodak Co. includes about $311,475 as a small business.
Ben Rand, a spokesman for Harris, said in an email that his
company submitted information to the government that "accurately reflects
our status as a large business."
ITT spokesperson Irene Lockwood wrote in an email that her
company "does not want to comment on a government form that was completed
by a contracting officer."
Carestream spokesman Robert Salmon said he was puzzled by the
small business classification.
"It is widely known and reported that we are a $2.4
billion company that operates in more than 170 countries around the
world," Salmon wrote in an email. "If our status has been
misidentified in a government managed database, we will look into this."
James F. Mossgraber, T&T's vice president and general
manager, said he doesn't feel his company ever unfairly lost a bid to a large
company improperly classified as a small business, but "it certainly is
rather disconcerting. ... We would certainly expect everyone to play by the
If a government agency is getting credit for a small business
contract, "it ought to be going to a small business," said Molly
Brogan Day, spokeswoman for the National Small
Business Association in Washington, D.C.
"We think that there are folks out there who do this on
purpose, either to bump up their contracting numbers or to get the contract,
whether it's the (government) contracting officer, or the company who is
miscoding what their company should be," she said.
Judging from their local advocates, small businesses have not
been vocal about the process.
Dan Smith, spokesman for the Rochester Business Alliance,
said small business owners who are members have not raised the issue to them.
He said president and CEO Sandra A. Parker "respectfully passes on an
interview on the subject."
Tim Mason, president and CEO of the Small Business Council of Rochester, an
affiliate of the SBA, wrote in an email: "I'm not at all comfortable
commenting on this topic and my members have not raised it as an issue."
How big is small?
The SBA defines a small business "as one that is
independently owned and operated, is organized for profit, and is not dominant
in its field." It sets a general standard of 500 employees for most
manufacturing and mining industries, and a maximum of $7 million in average
annual receipts for most non-manufacturing industries.
Depending on the industry, the specific definition can include
criteria based on annual sales and the number of employees. But government
standards put the maximum number of employees at 1,500 for manufacturers. For
service companies, the maximum sales volume is $35.5 million.
The federal government has set a goal of awarding 23 percent
of contracts to small businesses to help support small companies, but
government agencies usually fall short. In 2012, only 22.25
percent of contracts worth $89.9 billion went to small businesses,
according to the SBA. The shortfall amounts to about $2 billion in contracts.
For 2008 through 2012, an average of 21.99 percent of federal
contracts worth $93.9 billion went to firms classified as small companies.
Lloyd Chapman, founder of the American
Small Business League, claims the real number is closer to 2 percent or 3
percent. He said the figures released by the SBA are tainted by billions of
dollars in contracts that go to large companies, but which are counted as small
"This is not miscoding, it's not simple human error, it's
not companies outgrowing their size status. It's not large companies buying
small businesses. It's fraud," Chapman said. The fraud, he claims is not
committed by the companies, but by government officials.
Problems not new
According to information on the Federal Procurement Data System
website, the business size information used in the contract database comes from
the federal government's System
for Award Management (SAM), a registry of federal contractors. The
information in SAM includes a section on "representations and
certifications" submitted by contractors regarding their status in various
categories, such as whether they are a small business, minority owned,
tax-exempt, or women owned.
But in many cases, companies that have not claimed small
business status in the SAM registry nonetheless are classified as small
businesses in the procurement database. Harris, ITT, Ortho-Clinical Diagnostics
and Carestream — four of the five largest recipients of federal contracts in
the Rochester area — all reported that they did not qualify as small
businesses. (The fifth, the University of Rochester, got no small business
Chapman said he analyzed the database of federal contracts for
2012 and found that, of the top 100 companies receiving the highest dollar
amount in federal small business contracts, 71 were large companies that
significantly exceeded the SBA's small business size standards. He said those
companies got about $9.5 billion in contracts.
In a spring report
to Congress, SBA acknowledged "procurement flaws that allow large
firms to obtain small business awards."
In an emailed statement, the SBA's Shoraka said the agency
"has no tolerance for waste, fraud or abuse in any small business
SBA officials listed several possible reasons why a large
company may be labeled as a small business. A company may have fit the size
criteria when a contract was originally awarded, but subsequently grew beyond
Some companies that seem very large may actually qualify as a
small business within a narrow industry sector.
If a small company is acquired by another firm and is no
longer considered small, it is the responsibility of the firm to notify the
government within 30 days to update its status. An error would occur if the
company failed to notify the government.
"Human error may occur when a contracting officer inputs
procurement data ... indicating that a firm is small when indeed it is
not," SBA officials wrote in an email.
About 5 million annual contract actions are handled by more than
30,000 federal workers, SBA officials said. If an error was made, SBA officials
said information cannot be changed after it is entered in the procurement
For several years, the SBA's Office of Inspector
General has reported problems with small business contracts going to large
During testimony to a congressional committee in April, SBA Inspector GeneralPeggy
E. Gustafson said: "Oversight of the government contracting and
business development programs, including investigating allegations that
ineligible companies are fraudulently benefiting from these programs, remains a
Gustafson said that as of Sept. 30, 2012, her agency was
investigating 62 government contracting cases worth more than $1.5 billion.
She also said in her testimony that, during the past year,
there was a significant increase in the number of lawsuits filed alleging fraud
in SBA government contracting programs.
"The OIG will continue to assess whether the SBA is
taking adequate steps to ensure the integrity of small business contracting,
with an emphasis on issues such as the accuracy of reporting small business
contract activity, large businesses being classified as small businesses,
adherence to regulations to protect small businesses, training of government
contracting personnel, deterring fraudulent acquisition of government
contracts, and bundling of contracts," Gustafson said.
Congress has taken action on the problem, according to U.S.
Rep. Chris Collins, R-Clarence, a member of the House Small Business Committee.
In an emailed statement, Collins said: "We continue to look at this issue
and advance legislative fixes to ensure that large corporations are not being
unfairly awarded federal contacts meant to support America's small business
The Small Business Committee developed a contracting reform
initiative that was signed into law in January as part of the National Defense
Authorization Act of 2013.
The legislation will enforce existing small business
contracting goals by making them part of the annual reviews and bonus
discussion for senior agency employees. It will make it easier to suspend
companies intentionally defrauding the government. And the law requires the SBA
to develop size standards that more accurately define a small business.
"I'm not suggesting that what the small business
committee did solved the problem entirely, but it acknowledges that the problem
exists and they put parameters in place that would hopefully take steps to curb
the problem," said Grant Loomis, a spokesman for Collins.