Are small-biz counts too good to be true?

Learning to count

The House Homeland Security Committee is concerned that the Homeland Security Department does not have an accurate measure of the money it spends with small businesses. Here is the cause of concern.

Under the current system, if DHS awards a $10 million contract to a woman-owned, small business in a Historically Underutilized Business Zone, that a contract counts three times:

Once towards its woman-owned business goals.

Once towards HUB Zone business goals.

And once toward its small-business goal.

Homeland Security Department officials use a single contract to the maximum extent possible to meet their small-business contracting goals, a practice that has raised questions on Capitol Hill.

DHS checks off as many small-business contracting categories as it can when the department awards contracts to small and disadvantaged businesses, amounting to what one lawmaker described as a numbers game. That practice is documented in a report by the House Homeland Security Committee released May 20.

Meanwhile, the Small Business Administration said it allows departments to count each small business with a government contract multiple times, depending on a number of characteristics of that business. Informally, the practice is called Check All that Apply. For example, officials count a contract with a woman-owned small business in a Historically Underutilized Business Zone in three subcategories: woman-owned business, small business and HUBZone business.

However, some lawmakers disapprove of agencies using that method to meet their small-business contracting goals. Rep. Bennie Thompson (D-Miss.), chairman of the Homeland Security Committee, said the method doesn’t give an accurate representation of how many small businesses have contracting opportunities at DHS.

“We cannot allow this numbers game to continue,” Thompson said.

“This method of multiple counting may serve to obfuscate an accurate accounting of the number of small, minority and disadvantaged businesses that are actually doing business with the government, creating an artificially robust picture of the federal procurement participation by these businesses,” the report states.

SBA officials have a different view of the practice. “If agencies could only report one category, the data would be inaccurate,” an SBA spokeswoman said. Federal law requires SBA to report how the government is achieving its goals in all socio-economic subcategories. By not counting a contract in multiple areas, the government would be ignoring certain socio-economic subcategories.

Each agency works with SBA to establish goals for small businesses, disadvantaged small businesses, HUBZone businesses, woman-owned businesses, and service-disabled veteran-owned small businesses. Each agency must attempt to reach those goals. Last year, SBA began publicizing the results of agencies’ small-business contracting efforts with a score card. In fiscal 2006, half of the departments and agencies received a failing grade. DHS was one of seven that received green, the top score.

SBA hasn’t released the 2007 score card.

In 2007, 33 percent of the $12.2 billion that DHS spent on goods and services went to small businesses, the report states. That year, DHS met each of its small-business contracting goals.

Even though the committee disagreed with the department’s counting method, DHS said it follows the rules on small-business procurement goals. Larry Orluskie, the department’s spokesman, said DHS uses governmentwide procedures that SBA established for the Federal Procurement Data System in the small-business category.

“Numbers aside, we put forth a great effort to work with small business and have numerous programs to help small business get into DHS,” Orluskie said.

However, Thompson said, the double-counting raises questions about the administration’s work to bring more small and disadvantaged businesses into the federal marketplace. The counting method in use encourages agencies to contract with certain companies, according to the committee’s report. Counting a company in multiple categories pushes agencies to work more with businesses that meet several criteria so the agency can meet its small-business goals quickly, the report states.

“Small, minority and disadvantaged businesses deserve the same opportunities as other businesses,” Thompson said. “The federal government cannot attain true transparency in contracting until the numbers game ceases.” 

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