Agencies Counted Big Firms As Small

By Carol D. Leonnig
Washington Post Staff Writer
Wednesday, October 22, 2008

U.S. government agencies made at least $5 billion in mistakes in their recent reports of contracts awarded to small businesses, with many claiming credit for awards to companies that long ago outgrew the designation or never qualified in the first place, a Washington Post analysis shows.

The Post examined a sampling of the $89 billion in contracts the agencies classified as small-business awards, which help them satisfy a congressional mandate to award nearly a fourth of all government work to small firms.

In the data The Post analyzed, federal agencies counted Lockheed Martin and its subsidiaries as "small" on 207 contracts worth $143 million. Dell Computer, a Fortune 500 company, was listed as a small business on $89 million in contracts.

The Navy claimed that $60 million in work it gave to Digital System Resources, a division of General Dynamics, went to a small firm -- a year after agencies were warned that DSR did not qualify. The Defense Department, which for a century has used Electric Boat to build submarines, labeled the firm as a small business for $1 million in supplies and services. The Department of Veterans Affairs said a computer glitch caused it to claim a $29 million payment to defense security giant CACI as a small-business award.

Government officials questioned by The Post acknowledged that mistakes are a long-standing problem, leading to exaggerated claims about the amount of federal work directed to a growing sector of the economy. The Small Business Administration, which annually reports on how agencies performed, said it thinks that many agency mistakes, including some The Post identified, have been corrected in a long-delayed report it plans to release today. The SBA has worked with agencies in the past several weeks to scrub errors from the data.

An SBA spokesman said it will report that small businesses obtained $83.2 billion in federal work last year -- about a $6 billion drop from what agencies claimed last month in a federal database SBA uses to track small-business awards.

"Are there lots of errors in the data? We have to say yes," said Calvin Jenkins, SBA's deputy associate administrator for government contracting. "But is it getting more accurate? Absolutely, it is. We rely to some extent on the public to help us fix some of these obvious errors."

The federal definition of a small business varies dramatically from industry to industry. For some, a business qualifies as small if it has fewer than 500 employees. For others, it must have less than $17 million in annual revenue.

Advocates for small businesses contend that the mistaken agency claims are more than a numbers game. When agencies take credit for awarding contracts to companies that are not small, they penalize legitimate enterprises that need government help, they say.

"I keep asking, 'How does this keep happening, and why isn't it being caught?' " said Robert Taddeo, president of Pacifica Electronics, a small business that repairs military aircraft communication systems. "What I've learned is the U.S. government is just lazy and lax in making sure to use legitimate small businesses that can do the work and keep down the cost to the taxpayers."

Lloyd Chapman, president of the American Small Business League, said the Bush administration has hurt the economy by not protecting small businesses' fair share. "For very dollar that was taken away from small business and miscounted, companies were forced into bankruptcy and to close their doors," he said.

The administration pledged last year to impose new controls to ensure greater reporting accuracy. But problems persist.

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