A Lack of Size Standards Cost Small Businesses Billions

   
   

There are more than 26 million small businesses in the United States. Almost all of them -- 98 percent -- have fewer than 100 employees. Yet, the basic standard for many industries is 500 employees.

A brief look at the problem

When discussing the diversion of federal small business contracts to large corporations, most people are amazed to find out that that a foreign company with 26,000 employees with offices in 17 countries has been considered a small business in the past and has received federal small business contracts.   However, the reality of the matter is that the problem is not one large company receiving federal small business contracts, but dozens.   We estimate that roughly $60 billion a year in federal small business contracts is diverted to large corporations.

Over the years, the Small Business Administration has revised its "size standard" - the numerical definitions for each industry. A recommendation to reduce the basic employee limit to 100 was halted by the SBA in July 2004, despite response comments that were overwhelmingly in support of the reduction.

"Small businesses are the backbone of the American economy," Representative Lynn Woolsey (D-CA) said in June 2004. "By working to change the definition of a small business for government contracts from 500 to 100 employees, federal contracts specifically designed to ensure the success of American small business would go where they belong - to support Americans, not big companies dressed in sheep's clothing."

The Small Business Administration issued the proposed rule change on March 19, 2004, stating its intention to reduce and simplify the number of size standards. The proposed rule would have helped millions of truly small businesses compete for government contracts. However, the proposal was withdrawn because it would have reclassified as large businesses more than 34,000 firms currently recognized as small businesses.

The ASBL is committed to reducing the allowable size of small businesses so that truly small businesses have a fair opportunity to compete for government contracts.

Our progress

  1. 600 large businesses have been stopped - Our information prompted their removal from SBA's database of small businesses.
  2. Victorious in reducing the SBA's Information Technology Value-Added Reseller size standard from 500 to 150.
  3. Gathered overwhelming support for the reduction in the size standard from 500 to 100 when the SBA sought public comment. The support ASBL received came from U.S. Chamber of Commerce, Small Business groups, and concerned small businesses across the country.
  4. Won a series legal battles - Since 2004, the ASBL has won a series of federal lawsuits that have forced federal agencies to release information, which has shown that billions of dollars in federal small business contracts reported as going to small businesses actually wound up in the hands of some of the largest companies in the world.
 

"The SBA awarded
4 of the 6
high dollar procurements,
reported as small
business procurements,
to large companies
at the time of the
procurements.

SBA OIG Report 5-14
February 24, 2005

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