Oct. 24, 2005--The federal government failed to meet contracting goals for small and minority-owned businesses last year, costing owners a record $1.6 billion and raising concerns that they will be squeezed out of Gulf Coast recovery work, a House Democrat report said Thursday.

While the federal contract marketplace grew by 3% to $295 billion in 2004, those awarded to small businesses dropped by 31% from the previous year, according to the so-called scorecard report, in which Democrats on the House Small Business Committee grade 22 federal agencies on meeting congressional contracting targets for small businesses.

Overall, the report gave the Bush administration a "D", its lowest grade in five years, along with failing grades for half of all government agencies on the scorecard. As many as five have earned failing grades in all six scorecards to date.

"This is simply unacceptable," said Nydia Velazquez, the committee's ranking Democrat. "It indicates the situation is not getting better for small businesses -- if anything, it is getting worse."

Earlier this year, the U.S. Small Business Administration, which oversees the contracts, confirmed that roughly $2 billion in federal money believed to have gone to small businesses in 2002 instead went to much larger companies.

The agency has since sought public input on how to improve small-business contracting. It also implemented a monitoring system that requires companies to reaffirm their small business status after being acquired by a larger firm.

Yet Thursday's report claimed small businesses received 22.36% of all federal contracts last year, with 3.78% going to disadvantaged businesses, 3.11% to women-owned businesses, and 3% to those classified as being in Historically Underutilized Business Zones, or HUBZones.

According to goals set by Congress, small businesses should get a full 23% of all federal contracts in any given year, with 5% for disadvantaged businesses, 5% for women-owned businesses, and 3% for HUBZone businesses.

In August, a report by the Federal Procurement Data Center said the government had not only met, but surpassed its goals, awarding some $69.23 billion in contracts to small businesses last year. That translates into a full 23.1% of all federal contracting last year, according to the SBA.

Velazquez said those percentages are skewed, because the agency continues to miscategorize larger companies as small businesses.

In June, a California court ordered the release of an SBA draft report showing how big companies like Hewlett-Packard, Titan, and Raytheon can be mis-categorized, making them eligible for some of the $60 billion in federal small business contracts each year.

That has some small businesses owners in the Gulf Coast worried about getting edged out of federal recovery contracts by bigger companies.

In Washington this month, a number of small business owners from the region told a congressional hearing they had yet to see a penny of federal money, in either disaster loans or contracts, for rebuilding efforts.

The Gulf region is home to some 900,000 small businesses.

Cathy Denison-Wicke, who applied for a federal rebuilding contract through her logistics coordination and workforce-training firm in Lake Charles, La., said she hadn't heard from any government agencies a full eight weeks after Katrina slammed into the Gulf Coast on Aug. 29. "The most frustrating part for me was that I was applying to do work I could have been doing all along," Denison-Wicke said.

By contrast, the government issued a handful of lucrative contracts within days of the storm to several large firms, including Halliburton, which was once run by Vice-President Dick Cheney.

In a letter to Comptroller General David Walker last week, Velazquez urged the U.S. General Accounting Office to investigate the SBA's response since the hurricane. "Entrepreneurs need to be more than an afterthought in the administration's recovery efforts -- the need to be a priority," Velazquez said.