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U.S. giving big firms work meant for smaller

By Rob Kaiser
Arizona Daily Star
October 16, 2004

After acquiring another company in February 1998, GTSI Corp. disclosed in its annual report that it had grown too large to win small-business contracts from the federal government.

Yet a recent study found that between 1998 and 2003, the reseller of computers, software and other technology products was classified as a small business while winning Department of Defense contracts worth nearly $1.2 billion.

GTSI, a reseller of computers, software and other technology products, is hardly alone.

The Center for the Public Integrity, a non-profit, non-partisan organization that investigates public policy issues, found that in the past six years more than $47 billion in Department of Defense contracts designated as small-business awards have gone to large companies.

The center is a nonprofit, nonpartisan organization that investigates public policy issues.

In total, 30 percent of defense-contract dollars reported as going to small firms went to large companies, the center said in a report.

"It's almost as if the whole idea of small business is a convenient fiction that's promoted by both political parties," said Larry Makinson, a senior fellow who worked on the study. "A lot of the money that you would think is going to truly small businesses isn't."

The federal government has a goal of spending 23 percent of its contract dollars annually with small businesses. Government officials often say they reach that goal, though the center's study raises questions about their calculations.

Government figures show 23.6 percent of prime contracts, or $65.5 billion, went to small firms in fiscal 2003. Of that total, $42.8 billion was from Defense Department contracts.

Yet the center's study questions whether many of those contracts truly were won by small firms.

For example, the center found 737 firms that won at least $100 million in defense contracts between 1998 and 2003. Of those, 189 had at least half of their contracts designated as small-business awards.

The center assumed that companies large enough to handle such a volume of business would be large businesses.

Defining a small business is not as easy as it sounds. Businesses fit into hundreds of different classifications, each with its own standard of what is small. As a general rule, the Small Business Administration defines small businesses as having less than 500 employees or less than $6 million in annual sales.

Makinson said some of the companies on the center's list might fit that definition, though GTSI was highlighted as a large company reaping small-business awards.

Last year, sales at Chantilly, Va.-based GTSI were nearly $1 billion, and it employed 685 people as of March.

Two other companies identified in the study as having received a large number of small-business contracts supply ready-to-eat meals for the military. Ameriqual Group, based in Evansville, Ind., won $440.1 million in government contracts that were classified as small-business awards during the six-year period, while Wornick Co. in Cincinnati won $561.4 million in small-business awards during that period.

Officials from the three companies did not return calls for comment.

Some large companies, Makinson noted, appear to have a strategy of acquiring small businesses that have won government contracts. Other small firms grow so much they should no longer be counted as small businesses, but they are considered small by the government.

The SBA proposed a rule last year that would require firms registered as small businesses to regularly recertify their status. The agency expects the rule will be adopted soon.

Lloyd Chapman, president of the American Small Business League, charges government officials regularly ignore large firms that improperly classify themselves as small.

"What I've discovered here is a pattern of the SBA not taking big companies off the list and not prosecuting them," said Chapman, whose organization focuses on small-business contract issues.

His group recently filed a lawsuit against the SBA to release a report by an outside consulting firm that looked into small-business contracting.



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