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Bill seeks more oversight for federal small-business contracts

October 20, 2011 12:00:00 AM PDT
Newly proposed legislation would increase oversight of federal small-business contracts, which in recent years have gone to several large companies.

"Large companies need to stop masquerading as small businesses to get government contracts," said the bill's author, U.S. Rep. Hank Johnson, D-Ga. "Especially given how many small businesses are struggling in this economy, my bill will go a long way in helping stop this abuse."

All told, 61 of the top 100 recipients of federal small-business contracts for fiscal year 2010 were large firms, according to an analysis by the American Small Business League, an advocacy group based in Petaluma. The group defines small businesses as those with fewer than 100 employees.

A few California Fortune 500 companies made the list of small-business contracts in 2010, including Northrop Grumman and Hewlett-Packard.

The Fairness and Transparency in Contracting Act targets provisions that have allowed large, publicly traded and foreign-owned companies to qualify as small businesses.

The federal government is supposed to award 23 percent of its contracts to small businesses. In fiscal year 2010, that amounted to approximately $100 billion.

But some have criticized the contract process. In 2005, the Small Business Administration's Office of the Inspector General called the diversion of federal small-business contracts to large corporations "one of the most important challenges facing the Small Business Administration and the entire Federal government today."

The inspector general found that government contracting staff have not always thoroughly verified companies' self-certification as a small business, allowing larger companies to illegally access small-business contracts.

In addition to widely recognized companies such as Hewlett-Packard and Northrop Grumman, the American Small Business League said other firms too big to qualify as small businesses got contracts. In California, the group singled out Ocean Systems Engineering in Oceanside; Innovative Technical Solutions Inc. in Walnut Creek; and Cobham Analytic Solutions, formerly known as SPARTA Inc., headquartered in Lake Forest. California companies won more than $180 million in small-business contracts during fiscal year 2010, according to data provided by the American Small Business League.

Sophie O'Donnell, vice president of contracts at Cobham Analytic Solutions, which has more than 1,200 employees, declined to comment.

Although the bill takes important steps to prevent abuse, it is not as rigorous as the program California has in place for state contracts, said Marty Keller, former director of the state Office of Small Business Advocate and founder of the political group Small Business Revolution.

"In California, in the four years I was a small-business advocate, I'm unaware of any cases where a big business got around the system illegally," he said. "So that tells me it's pretty effective."

In contrast to the federal system, where businesses self-certify their size, California has a certification process to weed out big companies up front.

"You'd have a hard time getting through the sieve," Keller said.

Read more California investigative reports at CaliforniaWatch.com.

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