A puzzling thing happened while writing this piece. In late August, the Administration said that federal purchases from small businesses amount to 21.5% of all federal contracts. This is important because the U.S. Census Bureau indicates that 98% of all U.S. companies are smaller than 100 employees, employ 50.2% of the private-sector work force, create over 97% of all new jobs and produce over 50% of national GDP.
Most readers of this journal work in small businesses. A next dot in this picture showed that over 99% of federal stimulus funds allocated to private entities went to large businesses. Yet another dot from a 2003 investigative study (GAO-03-704T) by the General Accountability Office (GAO) revealed that the Federal Procurement Data System (FPDS) permits companies registered in their database to retain small-business status over the life of a contract, as much as 20 years, even when business size or status changes dramatically.
This factor prompted the GAO to instruct the Small Business Administration (SBA) to remove 600 large firms from the list of qualified “small businesses.” However, the SBA refused and would not publish a list of companies on the certified small-business list. The next dot shows that the FPDS kept and used an erroneous list of eligible contractors – one containing firms such as Lockheed Martin, General Electric, Raytheon, 3M, General Dynamics, Hewlett Packard, Textron, British Aerospace, Dell Computer, Xerox, and many more – as qualifying small businesses. Connecting these dots reveals that less than 7% of federal contract dollars are spent with small business.
Yes, this issue is important, and there are several reasons why. Government has laws to prevent big business from using financial advantages to exclude competition with small businesses, and these laws were apparently ignored. In March 2008, SBA Administrator Stephen Preston refused to disclose the names of Fortune 500 firms that received the major portion of $270 billion in federal small-business contracts the prior two years, ignoring direction from the SBA Inspector General and the conclusions of 15 federal investigations into fraudulent diversions in contract procedures.
Indeed, small businesses are historically more efficient and cost effective in performing many, if not most, contracted activities subject to small-business set-aside provisions. It took persistence of the American Small Business League (www.ASBL.com) to bring all this to public attention.
Such government chicanery is not news but is appalling because of the flagrant, brazen and unrepentant nature of federal agencies’ behavior. What is most unusual to me is a coalesced dot made from these smaller dots – H.R. 2568, the Fairness and Transparency in Contracting Act, now pending in the Committee on Small Business. Introduced May 21, 2009, by Henry Johnson (D-GA), it has 12 co-sponsors of a starkly left-wing persuasion plus two moderate Republicans.
The purpose of this bill is to modify the definition of “small business” as stated in the Small Business Act (law) by including additional requirements that no publicly traded business concern is qualified as a small business and that no subsidiary of a public company or any foreign firm or subsidiary qualifies as a small business.
Further, the legislation requires that government agencies and contractors be notified of these changes, that the SBA makes public the name of all companies receiving small business contracts, that each federal agency publish a list of awards and contractor names to whom contracts were issued, and that all federal databases and information repositories prohibit misrepresentation and warn against practices that violate the intent of small-business contract protections.
All this law does is add specificity to what is already illegal but blatantly ignored by many federal contracting offices. Is it a revelation that government violates laws passed for others but with no force and effect for itself?
All this is what my wife calls “not poolside reading,” and it does tend to be boring. What are the reasons for this federal circumvention of law and specific intent as expressed by various related laws? Answers to this are a work in progress. But there is more than hearsay evidence that federal procurement systems are bogged down and inefficient to the extent that “it is easier to spend money with one big guy than put up with the hassle of a hundred little guys.”
In defense of the purchasing folks, there is little room for common sense in the “procurement process.” But they love to be a “keystone” and “in control” of what has become a lynchpin in America’s economy.
America deserves better than this shamble of bureaucratic ineptitude and deserves quality performance by federal employees in discharging duties. Why not tell this to a Congressman or Senator, recently sensitized to public sentiments via town hall meetings, with your desire to restore a modicum of efficiency and legality in how public money is spent? IH
Federal Contracting Debacle
October 2, 2009