After Hurricane Katrina, Parker Plumbing in Ocean Springs was able to secure some small contracts to do work at FEMA trailer parks. But when it came to larger contracts, Parker Plumbing and other local small businesses were left out in the cold.
“It turned out the bigger companies were coming in from out of town and taking the jobs from local contractors,” said Andy Parker, the company’s vice president. “Out-of-town contractors were getting the jobs before we were even aware they were available. It is a lot of the bigger companies. It is not that they are cheaper than we are. I don’t have a problem with people from out of town getting jobs, but it seems unfair they get jobs before we even know the jobs are available. Before we knew it, these big companies from out of state were pulling up and doing these big jobs, and we are completely left out of the picture.”
Even in cases where government contracts are supposed to set aside for small businesses, it is common for the work to go to big businesses, says Lloyd Chapman, president, American Small Business League (ASBL).
“Most federal small business contracts in every state in the country go to very big businesses,” Chapman said. “Quite a few go to Fortune 500 corporations. That is what happened with Katrina. Most of the contracts went to very, very big companies and most of the small business contracts went to very big companies. Of course, we are trying to stop that.”
Chapman says there are 2,500 large businesses found on the government’s data base of small businesses. ASBL research indicates that potentially as much as 80% of all federal small business contracts go to large businesses.
“And I’m talking about very, very large businesses,” Chapman said. “It is over $100 billion per year in contracts. That is staggering. It is probably the single most important issue that business owners in this country should be worrying about.”
Chapman said he talks each day to small business owners across the country, and all say the same thing about being cheated out of small business contracts by big businesses.
“After Katrina, the government was paying large businesses more money than it would cost to redeck with shingles to put blue plastic tarps on houses,” Chapman said. “The word that pops in my head is carpetbaggers. People were swooping down on the Gulf Coast making staggering profits off defrauding the government out of hundreds of million of dollars. Theses are the same companies we see again and again like Halliburton. Nothing is being done about it because people are not being heard.”
The ASBL claims a new policy proposed by the SBA and the Office of Federal Procurement Policy will allow the government to continue reporting awards to large companies as federal small business contracts.
“Even though the SBA’s own inspector general has urged the agency to implement annual recertification of business size status to prevent fraud and abuse in small business contracting, the SBA has consistently refused to implement it,” Chapman said. “Instead, the agency has adopted a policy that will allow companies to retain their small business status for up to five years. Issued under the guise of improving federal contracting opportunities for small business, this recertification policy will allow the government to continue including contracts to some of the nation’s largest companies toward their small business contracting goals.”
And the other side?
Asked for comment, SBA spokesman Mike Stamler stated: “We do not respond to anything from the ASBL.”
The U.S. Chamber of Commerce has endorsed the new rules on government contracting and procurement, calling the proposals and the formation of a new procurement “scorecard” for federal agencies important steps towards leveling the playing field for small business owners.
“Accurate accounting of small business contracts and a measure of how federal agencies meet their goals are two of our members’ biggest concerns,” said Giovanni Coratolo, executive director of the chamber’s Council on Small Business. “We applaud SBA for taking the initiative with these proposals and look forward to reviewing them in the coming weeks to learn how our membership can best capitalize on them.”
The Minority Business Development Agency (MBDA), which is part of the U.S. Department of Commerce, has lauded the SBA reforms stating they will help small and disadvantaged businesses, including 8(a) and minority-owned businesses, win more contracts from federal government agencies.
“Access to federal government contracts is vitally important to minority businesses,” said the MBDA national director Ron Langston. “MBDA will work to ensure that the recertification regulation and other reforms will open doors for minority small businesses.”
MBDA said the recertification regulation closes loopholes that had counted some large business contracts as if they were awarded to small businesses. The new regulations are effective June 30, 2007, and apply to solicitations and contracts issued after the effective date, as well as to contracts and solicitations in existence as of the effective date. According to a press release from the MBDA, whenever a small business merges with or is acquired by another firm, it will have to recertify its size. Other small businesses will have to recertify every five years.
“The new regulations are balanced to avoid penalizing small businesses that grow as a result of winning federal contracts,” Langston said. “They prohibit corporate giants from ‘winning’ small business contracts by acquiring small firms. The new regulations also help to ensure that small and disadvantaged businesses (SDB) get a full share of the SDB procurement pie and are not disadvantaged by the acquisition of small firms by larger firms.”
‘Improvement,’ says NFIB
The National Federal of Independent Businesses (NFIB) has taken the position that the new policies are a step in the right direction.
“It is better than what is currently happening,” said Andrew Langer, NFIB manager of regulatory policy. “Anything would be an improvement. This is a tremendous improvement.”
Langer said currently very little verification is required that a business is a small business. He likened a company that receives a contract and then grows beyond the size of a small business to a gazelle because it moves in leaps and bounds.
“Once a small business receives a contract and it becomes the gazelle we all want it to become, it tends to hold on to contracts to the detriment of other small businesses that want access to government contracts,” Langer said. “One of the reasons for the federal set aside contracts is to create more of these gazelles. The problem is, of course, these gazelles need to get out of the way and let other folks become gazelles. And this is a step in that direction.”
Langer said the federal government needs to be more aggressive in verifying the businesses that receive set aside contracts are in fact small.
“It is not as aggressive as it could be,” Langer said. “I think they have to do more to make the process more competitive and certainly more open. They need to do more to deal with businesses that do grow yet try to sneak in under the radar as small businesses.”
How big a deal?
However, Langer said this isn’t a big issue for most of their members because the vast majority of small businesses out there are not seeking government contracts. Only a small percentage might be interested in government contracts.
“I do hear from members about contract issues all the time,” Langer said. “But that has to do with foreign competition issues, getting paid on time, bundling issues — complications involved in the actual contracting process.
Those are the sorts of things I am hearing about. Usually the complaints are about agencies not living up to obligations or that the process is just too hard for the new business on the block.”
That is the experience of Aletta Donigan, owner of Artrageous Design, a graphic design and screen printing company in Ocean Springs. Donigan said that while there is a lot of government work her company could do, there is too much paperwork and onerous requirements to be certified a small business contractor.
“They want you to go through so many hoops that small businesses can’t afford it,” Donigan said. “The big boys up north get the contracts because small businesses down here can’t afford to follow the paperwork jungle.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.