Latest GOP scandal: Billions misappropriated to help corporations By Amanda Williamson

Insight on the News

August 15, 2006



The administration is sanctioning billions in small business contracts to be siphoned off to powerful, politically well-connected corporations in a massive fraud perpetrated against U.S. taxpayers and small business owners, according to high-ranking Democrats and independent watchdog groups.



"The Bush administration has intentionally allowed billions in small business contracts to be diverted to giant corporations," said Lloyd Chapman, president of the American Small Business League. "The days of these corporate bandits stealing contracts meant for small businesses are over."



Democratic legislators and small business advocates have aligned to stop large corporations such as Boeing, Lockheed Martin, Verizon, and Microsoft from gobbling up federal money in the form of small business contracts.



Mr. Chapman estimates that up to $100 billion a year in small business contracts has been misdirected to large businesses for the past five years. He says that Boeing was the largest recipient of small business contracts in 2005.



Federal investigations and independent studies indicate that the Small Business Administration under President Bush has been negligent in its role as an oversight agency.



The Small Business Act of 1953 mandates that 23 percent of the total volume of government contracts go to small businesses. The SBA announced in June that the $79.6 billion awarded to small businesses in 2005 exceeded that mandate. The American Small Business League (ASBL) is still investigating this claim, but independent research based on data from recent years suggests that the SBA is enhancing its performance record or is using numbers quite different from those released to the public to self-report.



Estimates of the overall shortfall at SBA vary greatly according to how researchers define a small business. A study by Eagle Eye Publishers concluded that only $65 billion in prime contracts was awarded to small businesses in 2005 and that the SBA missed its mandate by six percent.



Eagle Eye defined small businesses using government criteria that allows for businesses with up to 500 employees to be classified as small businesses.



Because of this shared criteria, Mr. Chapman calls the study highly conservative and points out that, according to US Census Bureau Statistics, the overwhelming majority of Americans work at firms with fewer than 100 employees.



In his July 12 testimony before Congress, SBA Inspector General Eric Thorson identified loopholes in existing regulations, inaccurate reporting of contract data and lack of penalties for large companies fraudulently seeking small business contracts as flaws in the government's small business program.



The Small Business Reauthorization Act of 2006, which is still pending in the House, could exacerbate or correct these problems, depending on which legislators ultimately have their say. Provisions put forth by Sen. Kit Bond, Missouri Republican, and Rep. Don Manzullo, Illinois Republican, regarding size standards applied to venture capital firms and franchises eligible for small business status have come under fire from small business advocates. Both provisions call for the repeal of existing restrictions on franchise and venture capital firm eligibility. The concern is that more and larger business entities will be competing for small business dollars if these provisions are drafted into law.



According to Rich Carter, a press secretary for Mr. Manzullo, the purpose of Mr. Manzullo's proposed repeal of existing size standards on franchises is to "force the SBA to regulate what defines a franchisee...because we have a lot of franchisees in America who have to go to court to qualify for a small business contract."



Mr. Manzullo first proposed this repeal in 2003. His proposal leaves it entirely up to the Administrator of the SBA to write the new standards.



There is no way to predict how newly appointed SBA Administrator Steven C. Preston will undertake to do that. However, Mr. Preston is the former executive vice president of Illinois-based franchisor ServiceMaster. ServiceMaster's political action committee has made campaign contributions to Mr. Manzullo since 2003.



For their own part, Democrats are responding to small business concerns and to what they see as deliberate executive policies of neglect, diversion, and concealment by drafting legislation designed to address the problems cited by Mr. Thorson and other federal investigators.



For example, Sen. John Kerry, Massachusetts Democrat, has stressed annual recertification of businesses awarded small business contracts. This is a priority for Mr. Chapman because it would guarantee that a business couldn't outgrow its small business status during the life of a contract. It would also make it more difficult for larger parent companies to siphon off small business money by acquiring a small business that already has a prime contract.



"Washington's lack of oversight and fake reporting of small business contracts means entrepreneurs are losing out on billions of dollars that should be used to create jobs, grow businesses, and contribute to the economy," Mr. Kerry said. "This administration has had six years to get it right, but they've done nothing but leave small businesses behind."







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