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Federal Market Intelligence for Small Business |
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News analysis:Govt’s small biz goal achievement under attack: Are criticisms valid?The Obama Administration recently announced it had reached 24.99% in small business procurement, exceeding the government’s 23% goal for the second year in a row. But instead of cheers, they got jeers. The Small Business Administration’s celebratory news was met with a stunningly negative response in some quarters. “The SBA is robbing small businesses,” Rep. Steve Chabot, R-OH, who chairs the House Small Business Committee, said in his official statement in response to the announcement. “The reason Congress asks for these numbers is so we can use them, not so that the Administration can pat itself on the back once a year.” Chabot, who objects to the SBA’s accounting methods, was not the only critic this year. While conservative gadfly Lloyd Chapman has been accusing the SBA of “fraud” in its small business goal achievement for several years, this year a consumer watchdog group, Public Citizen, also jumped into the fray, citing several of Chapman’s allegations almost verbatim. “Accounting tricks create false impression that small businesses are getting their share of federal procurement money,” Public Citizen claimed in its May 6 report. Perhaps it should have been expected that once the small business goals were met in fiscal 2013 and in fiscal 2014, after years of effort, the tables turned. Suddenly, the rules surrounding the goals are being harshly questioned. But are these valid criticisms, sour grapes, or just sourness? And even if alleged “accounting tricks” are a factor, are the problems significant enough to affect the goal achievement? Set-Aside Alert is looking for answers. Watchdog allegations To start, we examined the main allegations contained in Public Citizen’s recent report. Their claim is that the SBA is wrongly counting some large businesses as small. The government’s success in small business contracting “relies on methodologies that present a false impression,” the Public Citizen report claimed. “For example, the list of contracts the government counted toward meeting its small busines contracting goals in 2013 included some held by the largest companies with which the government does business.” Seven of the 10 largest contractors received at least one contract that the SBA counted toward small business goals that year, the report said. It named Lockheed Martin Corp., Raytheon Co., General Dynamics Corp., Northrop Grumman Corp. and several others as large contractors with small business awards counted toward the government’s goals. The report did not show the value of those awards. Set-Aside Alert’s research Set-Aside Alert decided to compile our own list--not just of the 10 largest--but of the 100 largest federal contractors in fiscal 2014 and their small business awards, if any. Our goal was to independently estimate the value of the small business awards going to the 100 largest contractors, to see if it is large enough to affect goal achievement. Our secondary goal was to further examine whether Public Citizen’s allegations were valid. Of those top 100 contractors, 57 had small business contract actions in fiscal 2014 (presumed to have been reported for small business goal achievement). Those small business awards totaled $289 million. That included $293 million in 45 awards minus $4 million in 12 negative awards (values below zero). At the same time, those top 100 contractors received $236 billion in contract awards in fiscal 2014. Their small business awards totaled about 1/10 of 1%. In the context of small business contracting, the $289 million was less than a third of 1% of all small business contract value and 7/100ths of 1% of total eligible contract value available to small firms. Based on Set-Aside Alert’s review, there was no indication that the top 100 contractors in fiscal 2014 were receiving small business awards at a level that would have materially affected small business goal achievement. Public Citizen’s response When we shared those findings with Public Citizen, Taylor Lincoln, author of the study, said while it’s clear some awards to large businesses are being included in SBA’s small business goal achievement,total dollars involved might be low. “It warrants further research,” Lincoln told Set-Aside Alert. “It is possible that the totals (of large businesses receiving small business awards) do not materially affect the goals,” he said. Public Citizen also cited the SBA inspector general’s 2014 finding of $400 million in “ineligible” 8(a) and HUBZone set-aside contracts. However, the IG previously told Set-Aside Alert that while the firms were ineligible under those set-aside programs they still may have been eligible for credit as small businesses. More research details Set-Aside Alert’s list of the top 100 contractors with small business actions had these top 10:
However, when Set-Aside Alert asked the SBA and other legal specialists whether those small business awards to these “other than small” firms were improperly awarded or were improperly counted toward goal achievement, or both, they said it could not be known without further research. “There are a lot of misunderstandings about small business procurement data. You cannot just make a list of Fortune 500 companies getting small business contracts. Some of those contracts are legitimate,” Isaias Alba IV, partner with Piliero Mazza PLLC, told Set-Aisde Alert. Current regulations Under current regulations, if a small business is acquired by an “other than small” business, it must report to the SAM.gov database and contracting officers the change in its size status to “other than small” within 30 days. From that point forward, the contractor may continue to perform on its existing small business set-asides until expiration; however, under SBA rules the agency cannot “take credit” for those awards toward meeting its small business procurement goals. A possible legitimate explanation for some of the small business actions for large businesses such as Lockheed and Raytheon is the 30-day period for reporting changes in size status after an acquisition, suggested Alba. Awards during that 30-day post-acquisition period would be counted as small under the current rules, he told Set-Aside Alert. Also, depending on how the acquisition is legally structured, there are types of acquisitions that would trigger a change in size status but would not trigger the SBA rule regarding agencies not taking credit toward goals, Alba said. In addition, SBA officials have acknowledged that reporting errors are made by agency contracting officers. There also are few specialists that can offer insight into how multiple agency reporting systems and forms are structured. When a small business changes its size status, can agencies relabel the contractor as “other than small” within a day? Do they have that flexibility? Stay tuned for more research on this topic. In a future issue we also will examine Chabot’s claim that the SBA is wrongly shrinking the pool of “eligible” contracts for small businesses, thus inflating the small business share. More information: Public Citizen May 6 report http://goo.gl/FVjjcM .
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