Government Errors Hurt Small Businesses

Update: The government failed once again to reach its 23 percent small business procurement goal, according to the Fiscal Year 2012 Small Business Goaling Report. Overall, agencies awarded 22.25 percent of their contracts to small businesses, worth just under $90 billion.

Are small businesses treated as “the lifeblood of our Nation’s free enterprise system” that George Bush Sr. described them to be? To answer this question, we must first look back at a 2008 Project On Government Oversight blog post examining a Department of Interior (DOI) Office of Inspector General (OIG) Report.

That report, titled Interior Misstated Achievements of Small Business Goals by Including Fortune 500 Companies, found that in fiscal years 2006 and 2007, the Department of Interior (DOI) awarded $5.7 million in small business contracts to large businesses including Home Depot and John Deere.

POGO made a Freedom of Information Act (FOIA) request in 2008 seeking more details about the report. Five years later, POGO received an Assignment Paper, written “to determine why larger businesses like Xerox and John Deere were coded as small businesses.”

The paper detailed the business coding process: Contractors first enter their business’ data into the Central Contractor Registration (CCR), which is managed by the General Services Administration (GSA). DOI contract officers then copy vendor entries into the Federal Procurement Data System (FPDS). This process changed in 2012 when the System for Award Management (SAM) integrated the CCR system.

DOI employee interviews were included in the paper to identify where in this process the coding errors occurred. Most troubling is the seeming powerlessness of DOI employees to fix errors they encounter. One employee said that she often went to the contractor after finding mistakes in CCR, but that “she has no authority to force a vendor to update CCR before their registration expires.” She described vendors as being “most responsive to correcting CCR when it means the difference in them getting the contract.” Another employee said that contractors will only correct CCR errors “if they want to get paid,” while another said that she wouldn’t know how to approach a vendor about an error that needed correcting.

Human error is also a reoccurring theme, including data input errors in CCR and FPDS, by contractors and government officials respectively. One employee recommended upgrading the data programs in ways that would minimize the chance for human error. A manager blamed the contracting officers, stating that contracting officers “click through mindlessly” when entering contracts in FPDS. He said that if they “did their job, this wouldn’t happen.” One employee blamed her entry errors on a lack of training.

The GSA and/or DOI need to tell the public whether the aforementioned problems have been solved. Have systems been improved to lower the potential for human error? Are contractors now being held more accountable for data accuracy? The American Small Business League (ASBL) notes that “misrepresenting your firm as a small business is a felony, but the SBA [Small Business Administration] has never prosecuted a single offender.” This needs to change, because, according to the ASBL, small businesses have lost over $40 billion dollars in federal small business contracts to large businesses this year alone.

Small businesses are losing ground in the contracting arena. There is already evidence that among government contractors, smaller businesses are faring worse under the sequestration. Despite Chuck Hagel’s announcement yesterday that defense contractors “will share the burden of spending cuts,” so far smaller businesses are losing value and employees rapidly while some larger contractors are not even adjusting their annual outlooks based on the budget cuts.

The Small Business Administration (SBA) created goals that measure small business contracting success. One goal is for federal agencies to ensure that at least 23 percent of their prime contracts are awarded to small businesses. This goal has not been reached, and from 2010-2011, the percentage of contracts awarded to small businesses actually decreased slightly. Unfortunately, it seems as if agencies treat the 23 percent goal as a maximum rather than a minimum. To change this mentality, members of Congress have proposed raising the Small Business goals to 25 percent.

In a March blog post, POGO reported that “the new top 100 [contractors with the U.S. government] received 55 percent of the $537 billion in federal contracts awarded in FY 2011.” Over 172,000 businesses were contracted that year, leaving astronomically fewer dollars for smaller businesses. Such a high awarding disparity is unacceptable.

More needs to be done to improve agency achievement of small business contracting goals and the contractor size coding system. This coding debacle is a perfect example of why we need reforms to give small businesses a chance.