Small businesses can fix economy if Washington lets them

Posted by Elena del Valle on August 31, 2011

By Lloyd Chapman
President
American Small Business League

Lloyd Chapman, president, American Small Business League

Photo: American Small Business League

Small businesses are the backbone of the American economy. There are more than 27 million of them and the latest U.S. Census Bureau data tells us that they create 90 percent of all net new jobs. Small businesses are responsible for half the private sector workforce, half of gross domestic product and more than 90 percent of U.S. exports. Also, 98 percent of U.S. companies have less than 100 employees. Yet policymakers either fail to realize this or flat out ignore it. Since 2009, small businesses have received a very small portion of stimulus dollars, while billions have gone to big banks and large corporations.

In 1953 Congress passed the Small Business Act, requiring a percentage of federal contracts to be awarded to small businesses (Currently set at 23 percent). This was a unique approach to economic stimulus. Congress basically decided to use the federal government, being the largest purchaser of goods and services in the world, to stimulate the economy by directing infrastructure spending to the nation’s chief job creators.

In 2011, this remains one of the most effective economic policies. Unfortunately, it is also one of the most mismanaged and poorly enforced. During FY 2010, most of the federal contracts government agencies counted as going to small businesses actually went to large businesses. Moreover, federal agencies reported contracts to companies such as Lockheed Martin, Northrop Grumman, AT&T, General Electric and many others as small business contracts. The American Small Business League (ASBL) examined the top 100 small business contractors during FY 2010 and found that 61 were actually large businesses.

The Small Business Administration (SBA) oversees these programs but has dismissed the abuse as simple “miscoding” or “simple human error.” In June 2011, SBA spokesman Mike Stamler claimed that federal agencies enter their small business contracting numbers into the federal contracting database but those numbers are not necessarily accurate. He told Alex Bolton from The Hill, “Every federal agency certified that the data is correct, which is not always true.” And yet the SBA proudly reported those numbers in their small business procurement scorecard, leading the public to believe the numbers were accurate.

The SBA has also adopted a grandfathering policy that allows agencies to report contracts as small business contracts for the life of the contract even after the business is acquired by a larger business or outgrows its small business size status. Large, multinational corporations have exploited this loophole for decades, acquiring small businesses with multiyear contracts then reaping the benefits.

Defense giant Lockheed Martin is a prime example of this. Lockheed acquired Gyrocam Systems LLC based in Sarasota Florida in 2009. During FY 2010 Gyrocam received more than $175 million in small business contracts but has more than 4,000 employees and boasts $200 million in annual revenue. Gyrocam’s sheer size and affiliation with Lockheed place it well beyond size constraints that define a small business.

The federal government began investigating this abuse almost a decade ago. In 2002, I provided information that prompted a Government Accountability Office (GAO) investigation confirming that, in direct conflict with the Small Business Act of 1953, a significant number of small business contracts were being awarded to some of the world’s largest corporations. Since 2003, a series of similar federal investigations have uncovered hundreds of billions of dollars in fraud, abuse, loopholes and lack of oversight of federal small business contracting programs.

In 2005, the SBA Office of Inspector General (SBA IG) released Report 5-15, which described the abuse as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” The SBA IG has name the issue as a top management problem for the past six consecutive years.

During his 2008 presidential campaign, then Senator Barack Obama stated, “Small businesses are the backbone of our nation’s economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants.” Though he has yet to act on the issue.

As the economy attempts to claw its way out of the recession, the challenges facing the nation’s chief job creators are ignored. U.S. Census Bureau data tells us that big banks and large corporations do not create jobs. Small businesses do. This suggests that economic recovery will remain sluggish at best unless the federal government ends the diversion of federal small business contracts to corporate giants.

As an award winning small business advocate, Lloyd has won more than a dozen lawsuits against various federal agencies based on the Freedom of Information Act, lobbied successfully against legislation aimed at harming the small business community, commented regularly on television about issues that impact small businesses and has been the subject of hundreds of news stories about small business contracting fraud. In 2011, Lloyd won the James Madison Award for contribution to the Freedom of Information Act (FOIA) by an organization.