It all Depends on what you call "Small Business"

Surfing the Internets I found a most interesting post by Chris Gunn, SBA continues to fabricate contracting data. Oh really? It seems the Small Business administration likes to re-categorize large multinational corporations as Mom & Pop operations in order to award them large amounts of government dough!

This year the SBA awarded $93.3 billion to Small Business in 2008. It appears the SBA also missed it's target in small business contract awards by a good 1.5% (ignoring the awarding of contracts to those not qualified).

The numbers are significantly inflated with some of the largest corporations in the world. In some cases the numbers even appear to be the result of fabrication by high-level government officials at the SBA and other government agencies.

For more than eight years the SBA and its executives have claimed that computer coding mistakes were responsible for billions of dollars in misplaced federal contracts. However, a series of federal investigations into the diversion of federal small business contracts to large corporations speak to a very different truth. Since 2003, more than 15 federal investigations have found that billions of dollars in federal small business contracts have been diverted to corporate giants because of fraud, abuse, loopholes and a lack of oversight by government officials.

Ok, from the bureaucratic nature of the SBA and trying to figure out how to get a grant, or contract, I can believe only large corporations have the manpower and time to figure it out.

Seriously, anyone out there who is a small business, go to the SBA site, see if you can figure out how to compete for a contract.

Yet, the data being displayed is for the most part during the Bush administration. In looking over any recent hearings or reports, at least the Senate SBA committee appears to be asleep at the wheel. How hard is it to list the various businesses awarded contracts this year?

I must also note that foreign corporations as well as FCDC (foreign controlled domestic corporations) appear to have been awarded small business contracts from past GAO reports.

The watchdog action group, American Small Business League has been on large, powerful MNCs, VCs, FCs, FCDCs obtaining these contracts, but as usual, small business simply does not have the lobbyist resources that large corporations do. The site has a nice scroll display of various Fortune 500 companies who have obtained small business contracts, just to catch your eye on what a dusty corner of corporate ripoff these SBA small business contract awards appear to be.

Maybe it is intentional that sole proprietors, LLCs and small corporations cannot possibly navigate through all of the paperwork, nomenclature, rules and forms to figure out how capture a contract?

In another article, Obama's small business plan is smoke and mirrors quotes:

The American Small Business League (ASBL) estimates the Obama administration awards up to $400 million a day in federal small business contracts to corporate giants.

and claims the Obama administration's plan for small business amounts to a bunch of nice sounding smoke and mirrors games.

Most interesting is Venture Capitalists have gotten into the small business contract award game. Bear in mind, VCs want a huge equity stake in a start-up, plus have a series of conditions which they will impose to obtain funding, but the biggest issue is...

Having billion dollar Venture Capitalist funds wedging themselves between a start-up and contracts creates an added layer of private investment fund diversion. Shouldn't it be that very start-up obtain funds directly from the SBA, no Venture Capitalists involved?

If a start-up obtains $22 million in round A financing...how exactly does that match up to obtain a $100 thousand dollar contract from the SBA? Wouldn't that start-up no longer be classified as a small business with that kind of capital resource dough? Oops, I guess it's pretty spendy to rent a Palo Alto or Manhattan address and get that really super cool office furniture! (so much for economic diversification across regions too!)

In addition to refusing to halt the flow of over $100 billion a year in government small business contracts to corporate giants, President Obama is backing new legislation and policy that will divert even more federal small business contracts to many of the nation's wealthiest investors.

The National Venture Capital Association (NVCA) and its wealthy members have been major contributors to the campaigns of President Obama and dozens of democratic leaders in Congress. In exchange for millions of dollars in contributions, President Obama has appointed several leaders of the venture capital industry to key positions in his administration. Karen Gordon Mills, a multimillionaire, New York venture capitalist and heiress to the Tootsie-Roll fortune was appointed head of the SBA. Mills has voiced support for changes in the federal definition of a small business that will allow even billionaires to participate in government small business contracting programs.

Unfair, uncool. Hey VC's you're supposed to dump in your own money into start-ups, not act as a flood gate to federal funds!

The Washington Post analyzed the SBA contract awards (from Oct. 2008):

In the data The Post analyzed, federal agencies counted Lockheed Martin and its subsidiaries as "small" on 207 contracts worth $143 million. Dell Computer, a Fortune 500 company, was listed as a small business on $89 million in contracts.

The Navy claimed that $60 million in work it gave to Digital System Resources, a division of General Dynamics, went to a small firm -- a year after agencies were warned that DSR did not 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 defense security giant CACI as a small-business award.

I'm not surprised by these facts. To obtain a security clearance required to work on many DoD contracts is a bureaucratic nightmare maze, very expensive (~$20k per clearance!), terms used one doesn't see elsewhere in Science, Technology, Engineering, Mathematics and general research fields....a world of inefficient confusion onto itself. Add to that some absurd layer of subcontractors and who you know, instead of what you can do....well, the little guy doesn't stand much of a chance. Indeed, women and minorities, and areas of the nation which could really use some good paying jobs and needed industry, just aren't getting hardly any of the pie. Myself, in looking over these various programs cannot reiterate more strongly that while trying to navigate the SBA bureaucratic maze....it really appears the SBA is hiding that cheese.

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Comments

Large Corporations are just part of the problem

Consider this: The definition of a small business for government contracting is 500 persons. I don't know anyone running a "small business" that has 500 people working for them. This makes the granting of contracts to Fortune 500 "small business entities" even more unforgivable. A 500 person corporation most definitely has the resources to obtain security clearances, not that I'm particularly happy with that definition.

And never mind trying to figure out how to file a contract! There is a structure there which is completely opaque to the average business person, especially ones running actual small businesses. If you go the Federal Business Opportunities website (fbo.gov), you can scroll to your hearts content through page after page of "opportunities" that are actually either tailored very specifically so that only one contractor can bid, or that are actually announcements of pre-assigned, no-bid contracts. Good luck getting one of those!

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