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Big Firms Cash In on SBA Contracts

Fortune 500 companies got $12 billion reported as going to small businesses, report says.

July 27, 2006|Heather Gehlert | Times Staff Writer

WASHINGTON — Billions of dollars in federal contracts that the government says it awarded last year to small businesses ended up in the hands of large companies, many of them defense contractors and other Fortune 500 firms, according to a report released Wednesday by Democrats on the House Small Business Committee.

The report says that $12 billion in contracts given to large companies have been miscoded as small-business awards, allowing government agencies to give an inflated picture of procurement numbers and count awards to such business giants as Google, Wal-Mart Stores and Los Angeles-based Northrop Grumman toward their small-business contracting goals.

Legitimate small businesses are losing out in the process, said Rep. Nydia M. Velazquez of New York, the committee's top Democrat. "Small businesses are the innovators, the job creators in our economy," she said, "and we're shutting the door on them."

Awards identified as going to small businesses included $90.6 million to Northrop, the report said.

Others included $5 million to AT&T, $2.2 million to Rolls-Royce, $2.3 million to Home Depot and nearly $8 million to Lockheed Martin. Google's awards totaled almost $60,000; Wal-Mart's, $14,242.

Under federal law, the value of contracts given to small businesses each year must be 23% of the total awarded to all firms. The definition of a small business varies by industry. Manufacturing companies typically have fewer than 500 workers, and service companies generate less than $5 million in gross annual receipts, according to the House Small Business Committee.

Last year, according to the Small Business Administration, small businesses won $79.6 billion, or 25.4%, of the $314 billion awarded in federal contracts. But the Democrats' report noted that if the $12 billion in small-business awards that actually went to large companies is subtracted, the percentage requirement was not met.

The Democrats' investigation echoes the findings of several reports from the SBA inspector general's office that, for years, large businesses have received small-business awards in a variety of ways. The SBA has identified flaws in the procurement process as one of its top management's challenges this year.

In the cases cited in the report, federal agencies miscoded contracts to large companies as small-business awards. The SBA has also found that large companies have misrepresented themselves to the SBA or used fraud to gain contracts, and that some companies that began as small businesses have grown or been bought by larger companies but retained their small-business status.

"As a large business, we do not seek any dollars intended for small businesses," Gustav Gulmert, a spokesman for Northrop, said in a statement. "We have worked with the Small Business Administration to ensure that company information is updated in a timely and accurate manner, and we will continue to do so."

Gulmert noted that his company had "awarded more than $3.8 billion in subcontracts to small businesses in 2005, nearly 40% of its total subcontracting dollars."

Sen. John F. Kerry of Massachusetts, the top Democrat on the Senate Committee on Small Business and Entrepreneurship, said these falsely awarded contracts were "an extreme abuse of administrative oversight."

Representatives of large companies that claim to be small businesses can be punished with up to $500,000 in fines and 10 years in prison.

"We have yet to obtain a criminal prosecution of a large business that has misrepresented its status," SBA Inspector General Eric M. Thorson said in a Senate committee hearing this month. "... The reality is that juries are reluctant to return guilty verdicts in a government contracting fraud case if the government has been negligent, or has failed to look into obvious discrepancies."

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