Federal Small Business Contracting: Fact or Fiction?

The Small Business Administration (SBA) recently boasted that the federal government exceeded its small business contracting target in fiscal year 2014. The government is required by law to annually award 23 percent of all prime contract dollars to small businesses. According to the SBA’s FY 2014 scorecard, agencies awarded a record-high 25 percent of contract dollars—$91.7 billion—to companies that meet the size eligibility standards: generally, fewer than 500 employees and less than $7.5 million in average annual receipts.

Good news, right? After all, small businesses are “the backbone of our economy and the cornerstones of our communities,” in the words of President Obama. Unfortunately, past experience shows that the SBA’s numbers must be taken with a handful of salt.

The SBA admits that its scorecard methodology has flaws. An SBA official explained to Government Executive that the baseline for determining contract award percentages excludes certain kinds of contracts, including contracts for overseas contingency operations. Removing these billions of dollars from the calculation obviously makes it easier for the government to attain the 23 percent goal. (Studies conducted in 2013 found that these exclusions inflated the small business contracting amount by roughly 3 percent.)

But there is a more important reason to be skeptical of these scorecards: the government simply fudges the numbers. Investigations by the Government Accountability Office and SBA’s Inspector General, as well as by private groups such as Public Citizen and the American Small Business League (ASBL), have found that small business contracts are often awarded to non-small businesses and get counted toward the annual small business contracting goal. Every year, the ASBL combs through federal contracting data and finds a disturbingly large number of Fortune 500 companies that have won federal small business awards.

This problem, which is more the result of errors by government contracting officials than fraud by the contractors, has persisted for years. During his 2008 campaign, then-Senator Obama proclaimed that “it is time to end the diversion of federal small-business contracts to corporate giants.” Nonetheless, large companies obtaining small business contracts and the agencies counting these contracts toward their small business goals are still among the SBA’s Most Serious Management and Performance Challenges.

In the meantime, the SBA is facing heat from a skeptical Congress about its latest scorecard. Senate Small Business Committee Chairman David Vitter (R-LA) wrote a letter to the SBA requesting a list of all companies that were counted toward the FY 2014 goal.

An increase in the number and amount of contracts being awarded to small businesses is encouraging, but we’ll just have to wait and see if the numbers hold true.