Small-firm contract tally may be inflated, SBA says

The federal government last year fell just shy of its goal of giving small businesses almost a quarter of its contracts, but the Small Business Administration warned that error-filled data submitted by agencies might have falsely inflated the government’s numbers.

SBA acting Administrator Sandy Baruah estimates that federal agencies overstated their progress by $5 billion to $10 billion last year by improperly contending that small firms received work that actually went to large corporations.

Baruah made his comments at a news conference Wednesday at which the SBA announced that the government awarded 22% of its contracts to small businesses, 1% short of the 23% government-wide goal mandated by Congress. The contracts amounted to $83.2 billion. That was a drop from the 2006 numbers, when the government said it awarded 22.8%, or $77.7 billion worth, of contracts to small firms.

Seventeen of 24 agencies met their contracting goals when measured individually. The Defense Department, the largest government contractor, with control of 69% of federal work, missed the goal. It said it hired small firms for 20.4% of its work last year; it claimed 21.8% in 2006.

Baruah said the SBA scrubbed many errors from the data in recent months, but he acknowledged that more work needed to be done based on a Washington Post analysis published Tuesday that identified $5 billion in contracts that the government erroneously classified as contracts to small businesses.

“We believe this article confirms what we’ve been saying internally: There are a lot of errors in the data,” he said.

Advocates for small businesses contend that the mistaken agency claims are more than a numbers game. When agencies take credit for awarding contracts to firms that are not small, they penalize legitimate enterprises that need government help, they say.

“I keep asking, ‘How does this keep happening, and why isn’t it being caught?’ ” said Robert Taddeo, president of Pacifica Electronics, a small business that repairs military aircraft communication systems. “What I’ve learned is the U.S. government is just lazy and lax in making sure to use legitimate small businesses that can do the work and keep down the cost to taxpayers.”

Democratic lawmakers in Congress criticized the government’s record on accurately measuring its small-business work, noting that the high error rate means the Bush administration cannot say with certainty whether it missed the small-business contracting goal by 1% or by a much larger margin.

“This failure of the Bush administration to meet its 23% small-business goal is inexcusable,” said House Small Business Committee Chairman Nydia M. Velazquez (D-N.Y.) “Given the continued miscoding of large-business contracts as ‘small,’ the one thing we do know is that the actual small-business percentage is below what the SBA is claiming.”

The Post examined a sampling of the $89 billion in contracts the agencies classified as small-business awards. The Post found that federal agencies counted Lockheed Martin Corp. and its subsidiaries as “small” on 207 contracts worth $143 million. Dell Inc., a Fortune 500 company, was listed as a small business on $89 million in contracts.

The Navy contended that $60 million in work it gave to Digital System Resources, a division of General Dynamics Corp., went to a small firm -- a year after agencies were warned that Digital Systems didn’t qualify. The Defense Department, which for a century has used Electric Boat to build submarines, labeled the firm as a small business for $1 million in supplies and services. The Department of Veterans Affairs said a computer glitch caused it to claim a $29-million payment to military security giant CACI International Inc. as a small-business award.

The SBA, which has responsibility for catching errors, is understaffed and has little power to sanction agencies.