THE ECONOMIC HERETIC | Constantine von Hoffman

Who Really Gets Uncle Sam's Small Business Contracts

Three of every four "small business" contracts awarded by the U.S. government go to the likes of Apple, Chevron and GE.

Uncle Sam

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In the last fiscal year, 72 of the federal government’s top 100 small business contractors were some of the world’s largest companies. Research by both the American Small Business League and the SBA’s Inspector General found that Apple, Chevron, Shell, General Motors, General Electric, Coca Cola, Bank of America and 65 other giant companies got these contracts despite President Obama’s pledge to end this practice.

This practice has gone unchecked for years despite many government reports documenting the problem. In its most recent report, the SBA’s Inspector General said the agency’s top challenge is getting rid of  flaws that let large firms obtain small business awards and agencies to count contracts performed by large firms towards their small business goals. Under federal guidelines 23 percent of all government contracts are supposed to go to small businesses.

Large businesses have been able to get around this thanks to a combination of deceptive practices and government incompetence.

Studies have shown widespread misreporting by procuring agencies since many contract awards that were reported as going to small firms have actually been performed by larger companies. While some contractors may misrepresent or erroneously calculate their size, most of the incorrect reporting results from errors made by government contracting personnel, including misapplication of small business contracting rules.

One of the problems is a loophole in how the government awards contracts that contain multiple industrial codes. As it now stands, a company can identify itself as small on individual task orders for a contract even though it doesn’t meet the correct size criteria. That's because small businesses bought by large companies can qualify as “small” for contracting purposes for years after being purchased.

According to the Inspector General’s report, the SBA has made only “limited progress” toward

  • Making sure contracting officers get “adequate” basic training on small business contracting procedures
  • Coming up with regulations requiring firms to meet the size standard for each specific order they receive and showing that these regulations are being followed.

The IG has also called on the agency to overhaul its surveillance review process to make sure these are done “in a thorough and consistent manner.”

Constantine von Hoffman is a writer and sometime standup comedian. His work has appeared in Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, and Boston Magazine. @CurseYouKhan