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Seeking a Bigger Slice of an $85 Billion Pie

By Elizabeth Olson
New York Times
September 12, 2006

SMALL-BUSINESS owners who have been thwarted in getting their lawful share of federal contracts are hoping to find some relief from new proposals being floated by the Bush administration.

At stake is billions of federal contracting dollars, of which 23 percent, or roughly $85 billion, is legally set aside for small businesses. Government studies of federal contracting have revealed that a considerable chunk designated for small businesses ends up in the coffers of some of the nation's largest corporations.

In June, the Small Business Administration revived debate over the issue when it announced that small businesses had received a record $79.6 billion in federal prime contracts for the 2005 fiscal year. The amount, said Hector V. Barreto, the former agency head, was $10 billion more than the year before, or 25.4 percent of the contracting dollars awarded in fiscal year 2005.

The agency's figures have been hotly disputed, and a recent study by the Democrats on the House Small Business Committee found that nearly $12 billion in fiscal 2005 contracts that were credited to small firms had been directed to large businesses.

Both Congressional committees that oversee small business have been studying ways to strengthen the government's oversight and enforcement to ensure that contracts designated for small businesses actually land in the right place.

The Senate Committee on Small Business and Entrepreneurship adopted proposals to strengthen the S.B.A.'s authority to, among other things, take action against companies that obtain contracts by misrepresenting themselves as small entities, and to require businesses to recertify their size yearly.

The House committee has bickered over what proposals it would include in its bill. The Democrats have proposed criminal penalties for contractors who knowingly certify themselves as small when they are not, and for allowing small businesses that have lost contracts because they were not properly coded as small business to seek damages for lost contracting dollars. The different approaches will be hammered out when the Senate and the House meet this fall to adopt the S.B.A.'s reauthorization bill.

Prodded by complaints from small-business owners and threats of Congressional action, the Bush administration set out some changes last month, noting that "aggressive steps can and must be taken to increase small business access to the federal marketplace."

In an Aug. 3 letter from the Office of Management and Budget to Olympia J. Snowe, Republican of Maine and chairwoman of the Senate small-business committee, the administration said it would seek ways to "unbundle" contracts meaning that huge contracts could be broken into smaller pieces for small businesses to bid on. It said it would add more oversight and try to change rules on the size of small businesses.

Clay Johnson, a deputy director at the Office of Management and Budget, who wrote the letter, said the proposed rule changes were meant "to guard against misrepresentation, miscoding or manipulation of the system by large businesses."

That is one central issue hurting small businesses in their pursuit of federal contracting dollars.

The government generally defines a small business as having fewer than 500 employees, but that can vary. The S.B.A. is reviewing the parameters, said Karen C. Hontz, the associate administrator for contracting, especially in industries that have gone through major changes, like information technology.

Lloyd Chapman, president of the American Small Business League of Petaluma, Calif., who has been a critic of how small-business set-aside contracts are awarded, said companies like Microsoft and Wal-Mart would continue to get unfair contract awards. He worried that proposed changes in size regulations would create a loophole that would "do more to divert funds from small businesses" than any fixes.



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