Will new contract rules help small biz?

This story ran on American Public Radio's, Marketplace on Friday, June 29th. It is a very good story and definitely worth a listen:

http://download.publicradio.org/podcast/marketplace/pm/2007/06/29_marketplace.mp3

Small businesses are supposed to get 23 percent of federal government contracts. Yet, big companies have been winning some of those jobs. New rules take effect tomorrow that are intended to change that. Steve Tripoli reports.


TEXT OF STORY

SCOTT JAGOW: Small businesses are supposed to get a percentage of federal government contracts — 23 percent to be exact. But somehow, big companies have been getting some of those contracts. So, tomorrow, new rules take effect. They're supposed to address this problem.
But the small business community isn't exactly holding its breath. Steve Tripoli reports from the Entrepreneurship Desk.

Steve Tripoli: Small business owners are angry. They say that too many federal contracts marked as going to small-businesses continue to go to big businesses. The entrepreneurs and President Bush's Small Business Administration can't agree on the extent to which that's happening, or why. Steve Preston heads the SBA. He doesn't think it's much of a problem. And besides, he says, the government isn't out to cheat anyone.

Steve PRESTON: It's less about something subversive or nefarious, and a lot more around people just not doing their jobs the way they need to.

Preston says simple data-entry mistakes are part of what's wrong. And small businesses that win contracts and then grow into big ones also skew the numbers.

Lloyd Chapman of the American Small Business League says Preston's just making excuses for a flawed contract-monitoring program.

Lloyd CHAPMAN: The SBA doesn't want the public to realize that this program is largely smoke and mirrors.

Chapman accepts that small businesses grow or can be bought out by bigger competitors. But he says when that happens they shouldn't be able to be counted as small for as long as they are now. And he says that's not the worst of it.

CHAPMAN: There's been three federal investigations now that have found fraud as one of the reasons why large firms are getting small business contracts.
. . . including one from the SBA's own inspector general.

Chapman doesn't believe the SBA wants to crack down. He points to the agency's new regulation taking effect June 30th. Many businesses will have to report a change from small status sooner, but not until the regulation's been in effect for five years.

Chapman says that's not nearly soon enough, and other small-business people agree.

Cindy Frene: This is actually our backlot where we have just one vehicle, right now. It's part of our livery service.

Cindy Frene has owned her suburban Boston transportation business for 17 years. Like many other small-business owners she's come to see the SBA as more obstacle than advocate for small firms.

Frene has several state government contracts, and a few years ago she tried to qualify for federal work. But that's where she ran into a foul-up she says is typical of the SBA.

FRENE: I basically was turned down because I would have to have had proof that I was discriminated against because I was a woman. Which is laughable because, who would give me a letter that said they didn't hire me because I was a woman?

She sees the same unhelpful pattern in that new, five-year recertification rule that kicks in this month. Frene recertifies her small-business status every year. She has to do that for several state governments. She says it isn't onerous and the businesses handle most of the paperwork.

FRENE: If it's done as a matter of course for states, then why can't the federal government do it too? Rather than continue to put up barriers.

Frene says if companies reported their size annually the SBA would see how many of them are really big businesses taking contracts marked as small. Then it would be forced by law to reallocate more contracts to small firms.

The nonpartisan Government Accountability Office and several congressional committees seem to agree. They've joined small businesses in calling for the change.

PRESTON: There are many people on the other side as well.
That's SBA head Steve Preston. He says annual recertification is too onerous for many dynamic young companies.

Lloyd Chapman of the American Small Business League rejects that argument. He says waiting five years means billions in losses for small businesses. And it flaunts the intent of the 50-year-old Small Business Act.

CHAPMAN: I'm not gonna buy anyone's excuse that it's not feasible to enforce a piece of legislation that's been on the books for 50 years.

The irony here is that a previous SBA inspector general agreed with Chapman. Two years ago, he issued three reports saying that big businesses are unjustly hogging small-business contracts. We asked the current inspector general via e-mail if those problems still exist, and whether they're adequately addressed by the June 30th rule change. His lawyer's answer? No comment.
I'm Steve Tripoli for Marketplace.