Bush Administration Paper Shuffling Thwarts Small Business Reforms

It's an old truism in Washington that Congress can pass all the laws it wants, but in the end, some nameless, faceless bureaucrat will decide whether they ever amount to more than paper shuffling. A case in point is the federal government's small business contracting programs.

For the last six years this brewing scandal has been on a long, low boil. Congress has held numerous hearings and passed a string of laws to address problems, tighten regulations, and reduce widespread abuses documented by federal investigators, largely to no avail.

The contracting programs were created to give small businesses a leg up in the competition for some of the estimated $420 billion the government spends each year on goods and services. The noble goal is to foster growth, create jobs, and eventually allow small businesses to become successful big businesses. But year after year, paper just seems to get shuffled and the problems persist.

Earlier this week, a familiar scene unfolded before the Senate small business committee. Small business advocates and a handful of government bureaucrats sat down once again to testify about the government's perennial inability to meet its small business contracting goals or adequately police abuses. But this time there was a key difference: For the first time in a decade, the committee is in the hands of Senate Democrats, who swept into power during last year's midterm elections.

Committee chairman John Kerry, D-Mass., blamed the problems on a maze of complicated regulations, loopholes favoring big businesses, and a lack of protections for small business subcontractors, who are often at the mercy of abusive prime contractors.

But the real problem, according to small business advocates, boils down to bureaucratic indifference, with roots that can be traced to the White House. For long-suffering small business contractors, a recent Government Accountability Office (GAO) report comes as no surprise. It found that the administration has selectively chosen not to enforce laws it doesn't like, even though the president has signed them into law.

Legal scholars have begun debating whether the president has the right to do so, or is thumbing his nose at the Constitution, but the administration's bureaucratic insolence is already well known in small business circles. Magdalah Silva, president and chief executive of a management and technology consulting firm in Washington, cited a program to assist women-owned businesses. It has been on the books for seven years, yet the Small Business Administration (SBA) has never implemented it.

The law is supposed to help the government set aside 5 percent of federal contracts for women-owned businesses, another goal that Congress established and federal bureaucrats have never met. "For seven long years, the SBA has studied and restudied this issue. We have waited long enough," she said.

Silva testified on behalf of a bipartisan, nonprofit Washington group known as Women Impacting Public Policy. The group claims another program to assist women has also been set up to fail because the government hasn't updated it since 1989.

The president, of course, is not beyond paying lip service to small business concerns. In 2002, he pledged to reduce "contract bundling," a process that prevents small businesses from competing for billions of dollars in federal procurements every year, or worse, puts them at the mercy of abusive prime contractors. The president's promise came after the Office of Management and Budget discovered that every $100 awarded on a bundled contract resulted in a $33 decrease in awards to small businesses.

In 1984, Congress passed a law that prevented the government from bundling contracts that restrained competition, and three years later the Comptroller General issued an advisory prohibiting bundling for reasons of "bureaucratic convenience."

"Unfortunately, federal agencies have routinely ignored this, and [the law] does not set clear standards on the issue," said Todd McCracken, president of the National Small Business Association, a leading trade group.

Paul Hsu, the SBA associate administrator for government contracting and business development, told the committee that small business prime contracts had increased by $30.6 billion in FY 2005 over FY 2000's amount, supporting an estimated 235,000 jobs. But, in fact, the government doesn't really know how many small business contracts it awards every year.

The SBA claimed the government had awarded 25.4 percent of its contracts to small businesses, exceeding the congressionally mandated goal of 23 percent. But one independent group that tracks government contracts claimed the figure was closer to 19 percent.

As it turns out, the SBA's own government watchdog agency, the Office of Advocacy, found that 44 of the government's top thousand small businesses in FY 2005 were actually major corporations. Combined they received $2 billion in contracts earmarked for small firms. Other critics, such as Lloyd Chapman, president and founder of the American Small Business League (ASBL), charge that the problem is far worse. The ASBL has sued the SBA on several occasions to find out the names of large corporations with small business contracts.

Of course, since 1988 it's been a felony for corporations to willfully misrepresent their status as small businesses to win government contracts. Violators can face up to 10 years in prison, fines of up to $500,000, and debarment from the program. But the government has never prosecuted or debarred any company.

Hsu told the committee that the SBA recognizes the need to improve government contracting programs, and SBA Administrator Steven Preston recently unveiled two new initiatives. One, announced earlier this month, asks the top thousand prime contractors to voluntarily disclose the small business contracts they hold; another sets new size standards and disclosure rules requiring businesses to report when they outgrow the program or are bought by a large corporation. Critics claim the latter is fraught with loopholes.

Whether this latest government effort to clean up problems amounts to more paper shuffling or real reform remains to be seen. But Democrats have a real chance to show they mean business, not by passing another law, but by insisting the government enforce and implement laws already on the books.