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Small Businesses Losing Out on Government Contracts

Small Businesses Losing Out on Government Contracts
Credit: LifetimeStock/Shutterstock

Inaccurate reporting, lack of enforcement and contractors misrepresenting the size of their corporation have lead large companies to secure contracts from the federal government that are intended for small businesses.

The Small Business Act of 2013 established the benchmark that 23 percent of all prime contracts be awarded to small businesses each year. The SBA reported in March that the federal government eclipsed that goal by two percent. However, Inspector General Peggy Gustafson of the Small Business Administration (SBA) identified the "weaknesses in small business contracting programs" as the top challenge facing the agency, citing unreliable reporting data from both government agencies and contractors.

Gustafson found that more than $400 million in contracts was awarded to ineligible companies in fiscal year 2013, artificially inflating the amount of contracts awarded to small businesses. That year, an additional $1.5 billion went to companies no longer in the SBA's small business contracting programs, the report states. While the SBA has taken steps to address the reporting issues since then, Gustafson said, fiscal year 2014 was not without similar issues.

The report states that several SBA contracting programs are plagued by flawed reporting requirements. For example, large companies were able to obtain contracts under the SBA's women-owned small businesses (WOSB) program, the 8(a) Business Development Program and Historically Underutilized Business Zones program. In the 8(a) Mentor-Protégé Program, Gustafson found that agencies were able to count contracts under which large companies completed most of the work toward their small business procurement goals. Each of these concerns, Gustafson said, led to overstatements of how many small businesses were actually receiving government contracts. In addition, the SBA neglected to act on its own analysis, which suggested that it reduce the size standard of what constitutes a small business. The inaction, she said, effectively pits small businesses against much larger companies seeking government contracts.

"Awards made to ineligible firms impact procurement opportunities for small businesses and damage SBA's credibility in reporting accurate small business contracting goals achievements," Gustafson wrote to SBA Administrator Maria Contreras-Sweet. "Without reliable data, SBA cannot accurately measure the federal government's small business procurement goals achievements, which in turn weakens the ability of Congress and other federal policy makers to determine whether the government is maximizing contracting opportunities for small businesses."

To address the issue, Gustafson recommended SBA strengthen its controls over agency reporting on contracts awarded to small businesses, establish a certification program to ensure only eligible companies receive contracts under the WOSB and revise the rules under the Program Fraud Civil Remedies Act to allow more stringent enforcement of violations.

"Although SBA relies on federal agencies to implement its programs and maximize procurement opportunities for small businesses, SBA is ultimately responsible for ensuring that small businesses receive a fair and equitable opportunity to participate in federal contracts," Gustafson wrote.

The report, entitled "Report on the Most Serious Management and Performance Challenges in Fiscal Year 2016," was released by the SBA's Office of Inspector General on Oct. 15.

Adam C. Uzialko

Adam C. Uzialko, a New Jersey native, graduated from Rutgers University in 2014 with a degree in Political Science and Journalism & Media Studies. In addition to his full-time position at Business News Daily and Business.com, Adam freelances for a variety of outlets. An indispensable ally of the feline race, Adam is owned by four lovely cats.