The government's list of small businesses receiving Katrina-related federal contracts along the Gulf Coast includes one of the largest debris-removal firms in the country and a billion-dollar corporation that boasts former vice president Dan Quayle on its board of directors.
Neither company is a small business by any conventional standard. But because of a loophole in federal regulations, a company can be counted as one if it was once small even if it is not now, raising questions about the statistics the government has been citing to defend itself from charges that it has favored big companies in the massive Hurricane Katrina cleanup.
The two companies, AshBritt Inc. and IAP Worldwide Services Inc., have between them Army Corps of Engineers contracts worth hundreds of millions of dollars in Gulf Coast recovery work. Because both firms were small when they won their first contracts, the Corps of Engineers said it still considers work performed under those deals as work by small businesses.
The problem is not a new one. A study last year for the Small Business Administration found $2 billion worth of contracts awarded in fiscal 2002 that were listed as going to small businesses that were not really small. A Government Accountability Office review in 2003 found $460 million worth of small-business awards to five large firms in fiscal 2001.
"This is not an occasional occurrence. This is a problem they've had for quite some time. And they seem either unwilling or unable to correct it," said Steven Sims, vice president of the National Minority Supplier Development Council, a trade group.
Since Katrina struck at the end of August, the Bush administration has been roundly criticized for doling out lucrative, no-bid contracts for recovery work to large corporations that lack ties to the three states hit hardest by the storm. Local, small and minority-owned firms have been particularly vocal in arguing that they have been unfairly passed over for work. Gulf Coast lawmakers from both parties have said the reconstruction will fizzle unless more of the money gets to the small firms that make up a disproportionately large share of the local economy.
A particular target of the small-business groups and members of Congress has been the SBA, which sets and enforces the standards for how companies are classified based on factors such as revenue or number of workers. The agency has been considering a new rule to close the loophole since 2003.
"We recognize that we need make changes to have more accurate reporting on small-business contracting," said Gary M. Jackson, assistant administrator for size standards at the SBA, who said a change may be in place by the end of the year.
David E. Cooper, a contracting specialist at the GAO, said the problem has been compounded in recent years by a thinning of the federal acquisition workforce that has led many agencies to award a few giant long-term contracts rather than many smaller deals that run for less time. The government is supposed to devote 23 percent of its contract awards to small businesses, but if an agency is already meeting that goal with existing contracts, it has little incentive to award new ones. However, the firms holding those contracts may no longer be small.
"The contracts have grown to such a magnitude that if you can get one, you're assured work for many years to come. But that locks a lot of small businesses out," Cooper said.
In response to criticism of the contracts it awarded after Katrina, the Federal Emergency Management Agency last week announced it would set aside for small, disadvantaged firms some of the work that had earlier been given to four massive corporations without competition. The agency says 60 percent of the $2.3 billion in contracts already awarded has gone to small businesses.
The Army Corps of Engineers, meanwhile, reports that about half of the $637 million it has spent on contractors so far has gone to small businesses -- $349 million.
