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Thursday, October 23, 2008

Washington Post Story Ignores Fraud in Small Business Contracting Scandal

Bush Officials Claim Small Business Contracts are Miscoding Errors for the Seventh Consecutive Year

Petaluma, Calif. –
For the seventh consecutive year, Bush Administration officials are still claiming that billions of dollars in federal small business contracts have been diverted to Fortune 500 firms through miscoding, human error and computer glitches.

A recent Washington Post story failed to mention 15 federal investigations, which found that blatant abuse and loopholes are rampant within federal small business contracting programs. Several investigations even found fraud.

As early as 1995, the Small Business Administration Office of Inspector General (SBA IG) found fraud in federal small business contracting programs. In its semiannual report to Congress the SBA IG stated, “of a particular fraudulent practice: companies that SBA, after sustaining protests against them, had prohibited from representing themselves as small businesses, under a particular SIC code, were continuing to falsely certify themselves as eligible for small business set-aside contracts.” (

In 2003, the SBA Office of Advocacy commissioned a report from Eagle Eye Publishers, which found "vendor deception" as one of the reasons large firms received federal small business contracts. ( The American Small Business League (ASBL) sued the SBA under the Freedom of Information Act (FOIA) forcing the SBA to release the original draft of the report that found fraud to be the cause of the problem. However, the edited version of the report released by the SBA had removed "vendor deception" as a reason for the diversion of federal small business contracts to Fortune 500 firms and other large businesses.

In 2005, based on information provided by ASBL President Lloyd Chapman, the SBA IG issued Report 5-16 which found large firms had received federal small business contracts by making "false certifications" and "improper certifications." (

Based on information provided by Chapman, the SBA IG found that GTSI and Insight Public Sector had misrepresented themselves as small businesses in order to receive federal small business contracts. In one investigation, GTSI was recommended for debarment for misrepresenting themselves as small and in another investigation Insight Public Sector paid a $1 million fine to settle a case in which the firm had misrepresented themselves as a small business to receive federal small business contracts. (

In 2005, the ASBL filed a lawsuit in Federal District Court, Northern District of California, which forced the SBA to release GTSI's name as the firm that had been recommend for debarment. (

This July, the Department of the Interior (DOI) Office of Inspector General released an investigation, which found the DOI had reported millions of dollars in small business awards to Fortune 500 firms. That investigation found Fortune 500 firms had listed themselves as small businesses in the government's Central Contractor Registration (CCR) database. (

In February, Senator Obama released the statement, “It is time to end the division of federal small business contacts to corporate giants.” Since then, Senator Obama has not mentioned the issue publicly and has not offered any specific solutions as to how his administration plans to address the problem.

Working with Senator Barbara Boxer (D - CA), ASBL President Lloyd Chapman has drafted legislation entitled, “The Small Business Fairness and Transparency in Contracting Act.” The draft legislation is based on the definition of a small business in the Small Business Act of 1953, which states that a small business must be independently owned and operated. The legislation would preclude the federal government from reporting awards to publicly traded firms as small business contracts.

"The GAO first reported this problem in 2003, there have now been over a dozen investigations and hundreds of stories. It is time for Congress to pass legislation to stop small businesses from being cheated by the government," ASBL President Lloyd Chapman said.


Christopher Gunn
Communications Director
American Small Business League
(707) 789-9575

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