- The Washington Times - Tuesday, May 13, 2003

Small businesses aren’t winning as many lucrative contracts designated for them as the federal government has reported, a study by Congress’ investigative arm has found.

About 11 percent of the 50,000 companies receiving contracts set aside for small businesses in fiscal 2001 exceeded the “small” standard defined by the government, according to the General Accounting Office.

The 5,341 larger companies posted $13.8 billion from the small-business contracts while earning $60.6 billion from open contracts.

The findings released this week cast doubt on the government’s report of giving 22 percent of the $50 billion pie to small businesses in fiscal 2001, said Dave Cooper, director for acquisition and sourcing management at the GAO.

It also raises questions about future reports, he said.

Most of the size discrepancies are caused by companies not using the standards set by the Small Business Administration (SBA), Mr. Cooper said.

Government contracts may last up to 20 years, and a business considered small at the beginning of a contract may outgrow the definition during the term.

Lawmakers said in a hearing yesterday that poor database systems and little enforcement of the contracting rules have caused much of the problem.

The SBA acknowledged at the hearing that its online database, Pro-Net, a directory of small businesses available for federal contracts, posts large businesses as well.

“But Pro-Net is meant to be a guide for contractors to search for small businesses in various industries,” said Fred Armendariz, SBA associate deputy administrator for government contracting and business development.

Mr. Armendariz added that contracting officers are responsible for determining if a company is too large or is owned by a large corporation.

Size standards the SBA uses to classify small businesses have caused information discrepancies between agencies, resulting in small firms losing bids, said U.S. Rep. Donald Manzullo, Illinois Republican and chairman of the House Small Business Committee.

“There is something wrong with this size system when agencies can’t determine how big is too big for a company,” Mr. Manzullo said.

He said he plans to set one manufacturing standard at the end of June, during the committee’s budget hearings for the agency.

“I will set an arbitrary size of 500 workers as the limit for small manufacturers, which is the industry that is plagued the most by this problem,” he said.

Under SBA standards, a small business generally has fewer than 500 employees and $5 million or less in annual sales. But the definitions vary by industry.

U.S. Rep. Nydia M. Velazquez, New York Democrat and ranking member of the committee, said she would push for small businesses to recertify with the government annually. Small companies currently must recertify every five years.

Kenneth Robinson, a small-business owner in Leesburg, Va., said the size and database issues are only a small part of the problem.

“There is a greater concern that some bigger businesses are knowingly labeling themselves as small businesses,” said Mr. Robinson, president and chief executive officer of Kenrob & Associates Inc., an information-technology company.

Lloyd Chapman, a small-business advocate who led calls for the GAO investigation, asked for stronger enforcement of the Small Business Act.

The law requires heavy fines, termination as a federal contractorand prison time of up to 10 years for a company that intentionally misrepresents its business size to the government, said Mr. Chapman, president of the Microcomputer Industry Suppliers Association, a Novato, Calif., association for small information-technology companies.


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