U.S. Small Business Administration Refuses to Release Report, Appeals Decision to Ninth Circuit to the ASBL; SBA Withholds Public Document, Fails to Fight Fraud in Awarding of Government Contracts

SAN FRANCISCO--(BUSINESS WIRE)--May 11, 2005--The U.S. Small Business Administration (SBA) has appealed a ruling by the U.S. District Court of Northern California ordering the SBA to release to the American Small Business League (ASBL) a draft report on government contracting. The SBA report describes how large companies are improperly winning contracts in the Federal government's $60-plus billion small business contracting program.

The report in question was prepared by Eagle Eye Publishers and delivered to the SBA on November 14, 2003. On December 28, 2004, the SBA released an edited version of the report, revealing that small business contracts had been awarded to 44 large corporations, including Raytheon Co., Northrop Grumann Corp., Carlyle Group, and Hewlett-Packard Co. On April 28, 2005, the court ordered the SBA to release the original report within 21 days, rejecting the SBA's argument that the report was "predecisional" and therefore protected by exemptions in the Freedom of Information Act.

“the SBA is fostering an atmosphere that encourages widespread fraud and abuse in small business contracting.”

SBA officials have wavered in explaining why they refused to release the original report to the public, choosing instead to hide possibly hundreds of cases where businesses fraudulently won small business set-aside contracts, said the ASBL. While the SBA originally argued that the content was "predecisional," it changed its case during a recent District Court hearing, telling the court that it would not release the report on "a matter of principle."

Lloyd Chapman, president of the ASBL, has no question about the SBA's reasons for hiding the report. "If there was nothing to cover up, they would have handed this report over months ago. The fact is that their edited report only listed 44 large companies as incorrectly receiving small business contracts, whereas we know that more than 600 large businesses have been taken off the SBA database in the past two years."

The Inspector General for the SBA has documented fraud within the SBA since 1995. Earlier this year, the SBA Office of Inspector General issued three reports citing misallocation of small business contracts to large businesses. According to the Inspector General, four out of six high-dollar small business contracts awarded by the SBA itself in fiscal years 2001 and 2002 were given to large businesses.

Senator John Kerry of Massachusetts, ranking member of the Senate Committee on Small Business and Entrepreneurship, addressed the issue in a January 25, 2005 letter to the SBA Inspector General. He wrote, "the SBA is fostering an atmosphere that encourages widespread fraud and abuse in small business contracting."

Next month, the SBA will be conducting hearings at 11 cities across the country to discuss small business size standards. Testimony presented at these hearings will be factored into SBA decisions about restructuring and simplifying size standards. One such change the SBA is considering is a "grandfathering" clause that would allow large companies to keep their small business contracts for up to five more years. During a recent public comment period, the SBA received approximately 6,000 comments on the issue, with more than 80% opposing the grandfathering proposal.

"Corruption within the SBA is one of the biggest challenges facing the government right now," said Chapman. "The release of the SBA's original report will be a key step in exposing the truth and making positive changes in small business contracting by the Federal government."

About the American Small Business League

The ASBL is a national organization focused on promoting the interests of the 23 million American companies with fewer than 100 employees. Among our successes, we provoked a GAO investigation confirming that a majority of small business contracts are going to large companies; we prompted a congressional hearing into abuse in small business contracting; we pushed the government to begin requiring annual recertification for suppliers; we helped eliminate a federal policy that allowed large businesses to buy small businesses and keep that small business status for up to 20 years; we forced the SBA to remove 600 large corporations from the SBA's database of small businesses; we succeeded in reducing the SBA's Information Technology Value-Added Reseller size standard from 500 to 150 employees; we prompted the SBA to propose redefining a small business as one with 100 employees or fewer; and we drove the SBA to change procedures allowing businesses to file protests against large companies falsely claiming to be small businesses. For more information, please go to www.asbl.com.