Small-biz report leaves gaping questions

Experts ask if small business is really getting its piece of the pie

The Small Business Administration may have overstated the percentage of federal contracts going to small businesses in a recently released report, experts say.

An Aug. 25 SBA report states that the government awarded small businesses $69.2 billion worth of prime contracts in fiscal 2004, just more than the minimum 23 percent statutory requirement.

But the percentage calculations exclude a large number of agency procurements, including contracts awarded outside the United States and those that agencies such as the Transportation Security Administration and the U.S. Postal Service funded.

"If you included the money that's excluded right now, the percentage would go down a couple points," said Paul Murphy, president of Eagle Eye Publishers, a government market intelligence firm.

The reason for excluding some contract dollars from the study's baseline is unclear, Murphy said. "It needs to be demonstrated, to validate the methodology. Otherwise, it just looks like they are artificially inflating the small-business share."

Nevertheless, SBA Administrator Hector Barreto said in a statement that the report shows that the government "broke records by awarding more contracting dollars to America's small businesses than ever before."

Of the nearly $300 billion awarded in federal prime contracts in fiscal 2004, the Defense Department awarded more than 70 percent, or $211 billion. And 22.3 percent of the DOD contracts, or nearly $47 billion, went to small businesses, according to SBA.

Although "the federal government reached its goal, I believe it still has room to improve," Barreto said.

But Rep. Nydia Velázquez (D-N.Y.), ranking member of the House Small Business Committee, criticized the numbers. SBA "continues to inflate, manipulate and misrepresent contracting data with the goal of hiding the true picture of what agencies are doing, which only masks the problems facing small firms today," she said in a statement.

Excluded contracts could add 10 percent to the approximately $300 billion worth of prime contracts awarded in 2004, said Raul Cisneros, an SBA spokesman.

An agency document states that as a matter of policy, SBA measures small-business wins using a baseline that includes contracts funded with appropriations covered by the Federal Acquisition Regulation.

"We anticipate following the same procedure when we next update the goaling guidelines," Cisneros added.

The agency's report marks the first time that SBA has used the Federal Procurement Data System-Next Generation (FPDS-NG) as the source for the small-business report.

Critics complain that the revamped federal database contains errors. The SBA report states that transitioning to FPDS-NG has created some data challenges, but the business impact of most of those challenges is minimal.

Evaluating impact is a matter of perspective, said Timothy Yeaney, Eagle Eye's vice president. "With 1.7 billion records and only tens of thousands of errors, I guess you could call it minimal," he said.

Yeaney said vendor information transferred from another database into FPDS-NG introduced many errors because "they basically opened the floodgates and turned off all error checking."

Setting goals

The federal government purchases billions of dollars in goods and services each year that range from paperclips to sophisticated information technology tools. To make sure small businesses get a fair share of government business, the Small Business Administration negotiates with each agency to determine how much money should be spent with small companies. SBA is responsible for regulating compliance with governmentwide goals.

The overall goals are to award:

  • 23 percent of prime contracts to small businesses.
  • 5 percent of prime and subcontracts to small disadvantaged businesses.
  • 5 percent of prime and subcontracts to woman-owned small businesses.
  • 3 percent of prime contracts to HUBZone small businesses.
  • 3 percent of prime and subcontracts to small businesses owned by service-disabled veterans.

Source: Small Business Administration

About the Author

David Perera is a special contributor to Defense Systems.


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