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SBA Ordered to Furnish Contracts Report

By Gwendolyn Bounds
The Startup Journal
May 13, 2005

A federal court judge ordered the U.S. Small Business Administration to turn over an original version of a report detailing how lucrative government contracts designated as going to small businesses sometimes end up in the hands of big ones instead.

The report is being sought by the American Small Business League, an advocacy group in Petaluma, Calif., which believes the earlier version contains information suggesting some companies may have "intentionally misrepresented" themselves as small businesses to receive small business contracts, says the group's president, Lloyd Chapman.

The final report, released last year by the SBA's Office of Advocacy, says that in fiscal 2002, roughly $2 billion in federal contracting money believed to have gone to small businesses primarily went to large firms. That version didn't allege any wrongdoing by the big companies, instead blaming regulation loopholes and computer coding systems, among other things.

Each year, Congress establishes small-business buying goals for most federal agencies and for the government as a whole, and an annual tally is made of how close each body comes to meeting its target. There are no legal consequences to missing, but there is substantial political and public pressure to meet the goals, and agencies are encouraged to set aside some contracts for bidding only by small firms. One question is whether big businesses are knowingly misrepresenting their size to obtain these set-asides. In the mid-1990s, for instance, the SBA's Office of Inspector General noted several instances of what it deemed "a particular fraudulent practice" in which companies claimed eligibility with various agencies even after the SBA had prohibited them from doing so.

Friday's court order originated from a complaint filed by the ASBL in the U.S. District Court for Northern California on Oct. 6, after the SBA had denied the organization's request for the report under the Freedom of Information Act. The agency had received the report -- compiled by Eagle Eye Publishers Inc., a Fairfax, Va.-based research group -- 11 months earlier, but hadn't released it. It did eventually release the report to the public in December; according to the lawsuit, that was the fourth draft.

The judge on Friday denied the SBA's motion for a summary judgment and ordered it to produce the first draft within 21 days. The SBA, which had claimed a FOIA exemption saying the document was part of "deliberative process privilege," said it is considering whether to appeal the ruling. "It's a quality-control issue," says Eric Benderson, counsel for the SBA. "The agency wants to make sure that nothing is exaggerated" unduly to the public.



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