The Small Business Administration (SBA) is starting to run out of believable excuses to explain why every year since 2000, billions of dollars in federal small business contracts have wound up in the hands of some of the largest corporate giants in the world.
The SBA has consistently claimed for over fifteen years that the diversion of billions of dollars in federal small business contracts to corporate giants is the result of random errors, computer glitches, miscoding, simple human error and anomalies.
What the SBA has never been able to explain is why all the alleged random mistakes do not have a random pattern of distribution, but in fact always divert federal small business contracts to large businesses and inflate the volume of federal contracts that are reported as going to legitimate small businesses.
On Thursday, September 10, new SBA Administrator Maria Contreras-Sweet struggled to explain why the SBA is still including billions of dollars in federal contracts to Fortune 500 firms in their small business contracting statistics.
New York Representative, and ranking member on the House Small Business Committee, Nydia Velasquez chastised Administrator Contreras-Sweet about firms like Raytheon, Northrop Grumman and Chevron receiving small business contracts. Representative Velasquez threatened Administrator Sweet with another GAO investigation of the agency. A 2003 GAO investigation of the SBA uncovered over 5000 large businesses were receiving federal small business contracts.
The latest data from the Federal Procurement Data System indicates of the top 100 companies receiving the highest dollar amount in federal small business contracts, 79 were actually large businesses.
The SBA Office of Inspector General has named the diversion of federal small business contracts to corporate giants as the number one problem at the SBA for a decade.
A recent legal opinion by Professor Charles Tiefer, one of the nation’s leading experts on federal contracting law, found no legal justification for the SBA’s inclusion of federal small business contracts to large businesses in their small business contracting data. He also found that the actual total federal acquisition budget is closer to $1.1 trillion versus the much smaller $355 billion used by the SBA.
As opposed to adopting any legislation or policies to halt the rampant fraud and abuse, the SBA has done just the opposite. On August 25, the SBA concluded taking public comment on a new policy that would likely encourage more federal contracting fraud and divert even more federal small business contracts to large businesses.
The SBA’s new “safe harbor from fraud penalties” policy received an overwhelming thumbs down from the public.
Under current federal law, a firm that misrepresents itself as a small business to illegally receive federal small business contracts can face up to ten years in prison, a fine of up to $500,000, or both.
Under the proposed SBA “safe harbor from fraud” policy, a large business that is caught committing felony federal contracting fraud can avoid any penalties by simply claiming they “acted in good faith.”
The fact that the SBA has proposed a new policy that could encourage fraud is startling, considering an investigation by the GAO essentially accused the SBA of encouraging fraud. GAO Report 10-108 stated, “By failing to hold firms accountable, SBA and contracting agencies have sent a message to the contracting community that there is no punishment or consequences for committing fraud.”
A recent investigation of the SBA Office of Advocacy by the Government Accountability Office also found significant problems. The head of that office resigned shortly after the results of the GAO investigations were released.
The American Small Business League has launched a national campaign to encourage the GAO and the FBI to conduct an investigation of SBA executives to determine who is responsible for the continuing fraud in SBA managed programs.