Every year the federal government releases a scorecard on small business contracting and every year it falls short of its mandated goal. So the question is not so much did it miss the goal, but rather by how much did it miss?
This year, the Small Business Administration (SBA) claims the government was short by a whisker. It reported that federal agencies awarded 22.8 percent of their contracting dollars to small businesses, just two-tenths of a percent shy of the 23 percent goal mandated by law. But hold your applause.
A new study shows that the government may have overstated those awards by anywhere from 30 percent to as much as 50 percent. The study is expected to be release shortly, but I have already obtained some of its key findings. The discrepancy is caused because many small business contracts have actually been awarded to large companies, according to Ashok Mehan, whose Washington suburban company, Fedmine.US, conducted the study.
“There are many anomalies in the numbers that the SBA has issued for meeting small business goaling,” said Mehan in an exclusive interview. “The SBA has overstated them, but what I’m finding in my study is that the SBA does not have any way of determining how many small businesses actually receive contracts.”
The problem, he said, involves the way that various agencies report contract awards to the SBA, which is charged with monitoring set-aside goals for small businesses and those owned by minorities, women, veterans, and disabled veterans. Agencies are supposed to determine company size based on NAICS codes, but many fail to do so. Without them, the SBA has no reliable way to determine whether contracts are actually going to small companies.
“I’m not out to bash any agency, just to state what the truth is,” said Mehan. “Whether the SBA is at fault or some other agency, let everybody else bring that out.”
The full House Small Business Committee is scheduled to take its first formal look at small business contracting in a hearing on Wednesday, Sept. 18. Mehan is not scheduled to testify, but Jovita Carranza, deputy SBA administrator, will represent the agency. Margot Dorfman, chief executive of the Women’s Chamber of Commerce, is also expected to speak.
The SBA reported last month that $77.7 billion went to small businesses in FY 2006, a $2.7 billion increase over the previous year.
The SBA also said it was forced to recalculate downward by $4.6 billion the amount of money awarded to small businesses in FY 2005 after discovering “coding errors.” Those errors caused contracts awarded to major corporations to be counted toward small business goals. The numbers may be further skewed because of exclusions that exempt many programs from small business contracting goals.
At the time, a private study by Eagle Eye Publishers, which tracks government data, claimed that federal agencies awarded only 17 percent of their contracts to small businesses, compared with a claim of 25.4 percent by the SBA. The SBA said it has revised its figure down to 23.4 percent.
Of the 24 federal agencies tracked by the SBA in FY 2006, 12 received failing marks for small business contracts awarded, including the two biggest buyers of goods and services, the General Services Administration and the Defense Department. Over the last two years, the SBA says it has scrubbed its database of $5 million worth of data-entry errors that led to miscoded contracts.
But Mehan says errors still abound. “The problem is all pervasive,” he said.