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Small Firms Losing Out on Some U.S. Contracts

GAO investigation finds that 'billions of dollars' intended for small businesses are going to corporations or their subsidiaries.

January 15, 2003|Karen Robinson-Jacobs | Times Staff Writer

Large companies are improperly getting billions of dollars in government contracts meant for small business, a preliminary investigation by the General Accounting Office has found.

Although the GAO inquiry is not complete, agency officials have advised staffers with the House Committee on Small Business that the amount of improperly awarded contracts is in the "billions of dollars," Wendy Belzer, a spokeswoman for Rep. Nydia M. Velazquez (D-N.Y.), the ranking Democratic committee member, said Tuesday.

The GAO is the investigative arm of Congress. The agency launched the inquiry last year after a California small-business group complained to Sen. Barbara Boxer (D-Calif.) and Rep. Juanita Millender-McDonald (D-Carson).

"We are looking into this matter; we've been looking at the contract awards and we are seeing that there is a problem," said GAO spokesman David Cooper.

Under a 1997 revision to the Small Business Act, Congress urged the federal government to spend at least 23% of its procurement dollars with small companies. Although there is no uniform definition for a small business, many federal agencies consider companies to be small if they have fewer than 500 employees.

A firm can face severe criminal penalties for knowingly misrepresenting its small-business status in procurement programs, according to the Small Business Administration.

Many procurement officers rely on listings contained in two databases -- one maintained by the SBA and one by the General Services Administration -- to identify small businesses. But critics say the databases are littered with the names of large corporations.

The size of the company is not always apparent from the listing, however, because the firm may be a small, relatively unknown subsidiary of a large corporation. In some cases, businesses that once genuinely qualified as small remain on the database after being acquired by larger companies.

. "It's bad data that's being relied on to make decisions about small-business awards," the GAO's Cooper said. Why these databases aren't being adjusted and fixed is the issue."

The GAO report is expected to be completed by March. Based on the preliminary findings, Millender-McDonald has urged the House Committee on Small Business to schedule hearings.

"If we're talking about a weak economy, we all have to do our due diligence on behalf of small business," Millender-McDonald said. "Where is the oversight of this?"

Velazquez said the hearings are expected to be convened once the GAO report is completed.

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