SBA Finds Small Firms Win More Contracts, but Problems Linger

Small businesses won a record $83.2 billion in federal prime contracts in fiscal 2007, but only three of 24 agencies met all of their small business goals as ranked by the Small Business Administration's second annual contracting scorecard, the agency's chief announced today.

The federal government database shows that federal agencies awarded 22 percent of their contracting dollars to small businesses, just shy of the 23 percent government-wide goal, said SBA Acting Administrator Sandy Baruah in a Wednesday morning press conference.

The Washington Post published an article today detailing how government agencies have awarded small business contracts to companies that do not fit the small business designation, including Lockheed Martin and Dell Computer. Referring to the article, Baruah said: "There are errors out there and we need to do more to correct them, but the scope of the errors aren't as great," as they may seem because $5 billion in miscoded contracts is an error rate of about 6 percent. He acknowledged this rate was still too high, but argued it should be put in perspective of the $89 billion in small business contracts awarded in 2007.

Baruah said stories like the one published in the Post this morning "helps us get the word out and adds transparency to the situation." The agency had estimated there were just shy of $5 billion in miscoded contracts, an estimate the Post investigation confirmed.

Baruah, who has held his position for about seven weeks, also said that although the data show that small firms are getting more contracting dollars, not all of the data are necessarily "clean."

An agency rule took effect July 1, 2007 requiring any small business with a federal contract to recertify its size if it merged or was acquired, and to repeat the recertification process a minimum of every five years while fulfilling a contract with a term longer than five years. In some cases, businesses had won contracts when they were small, but then grew, merged, or were acquired by large firms. Despite these changes, they were still recorded as small businesses.

The mid-year rule change means that the data reviewed for fiscal 2007 was submitted under two different rules, one that applied from January to July, and a second that applied from July through October, when the fiscal year ends.

"Clean data...is very important to us and the small business community," said Baruah, who added that the SBA and the Office of Federal Procurement Policy ordered the federal database scrubbed in 2005 but is still working to improve the data, most of which comes from the federal agencies themselves.

The scorecard also rated federal agency performance in meeting the overall small business goal and the component contracting goals for small disadvantaged businesses, small businesses in HUBZones, and small businesses owned by women and service-disabled veterans. Only the departments of Veterans Affairs and Energy along with the SBA met all of their small business goals. Seven agencies met or surpassed four of the five goals. Two agencies met or surpassed three of the five goals. Five agencies met or surpassed two of the five goals and two agencies -- the Department of Justice and U.S. Agency for International Development -- met none of the goals.

Sen. Olympia Snowe of Maine, the top Republican on the Small Business and Entrepreneurship Committee, expressed disappointment with the SBA's findings, saying the agency has provided "inadequate oversight of the federal government's small business procurement process" and "openly admitted that many federal agencies had issued contracts to large businesses that were misclassified as small firms."

She added that the SBA should "step up" to help the government achieve its contracting goals "as small businesses represent 99 percent of all firms nationwide and will be vital in leading an economic recovery effort, it is crucial that these enterprises receive every job-creating and capital-generating opportunity in the federal contracting marketplace."

By Sharon McLoone |  October 22, 2008; 1:30 PM ET Gov't Contracting , Watchdogs
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