Agencies Counted Big Firms As Small

Acting SBA Inspector General Peter McClintock said he is frustrated. "It is clear that more needs to be done and that contracting offices need to be held accountable for accurate reporting," he said.

Congress in 1997 established the government-wide goal of awarding 23 percent of its work to small businesses because they play an increasingly critical role in driving the economy. Small firms now employ more than half of the nation's workers and are responsible for 60 to 80 percent of jobs created each year.

The 23 percent goal is in addition to tailored government programs that reach out to disadvantaged or minority firms by setting aside certain contracts for them or programs that give bidding preferences to small businesses.

Companies doing work with the government are entered into a huge government database known as the Federal Procurement Data System and maintained by the General Services Administration. Procuring agencies note whether the company qualifies as a small business.

To sample the data's accuracy, The Post examined contracts awarded to the top 200 winners that were also classified last month as small businesses, a total of about $13 billion in contracts. The analysis also scrutinized $1 billion in contracts won by eight specific Fortune 1,000 companies and their subsidiaries.

The most errors -- 70 percent -- were made by the Defense and Homeland Security departments and the General Services Administration, the Post analysis showed.

The Post found that 36 of the 200 companies at the top of the government's list do not qualify as small under government definitions and were improperly counted. Federal procurement officials either did not check or ignored readily available records, including the government's own small-business registry.

About $1.2 billion in work was won directly by international conglomerates with thousands of employees. That included global defense giants such as British Aerospace, General Dynamics, Northrop Grumman and Science Applications International Corp. (SAIC) and their subsidiaries.

SAIC and its subsidiaries were the biggest winners of work that was improperly counted. The San Diego-based information technology firm and its subsidiaries won $258 million in contracts initially classified as small-business awards -- $223 million from the Defense Department. SAIC spokeswoman Laura Luke said the firm never presents itself as small and alerts the government that firms it has purchased should lose their small-business label.

The Pentagon said it is reviewing The Post's findings, but suspects some acquired companies remained classified as small under long-term contracts that were not modified.

"The department takes the accuracy of the information reported to FPDS very seriously," said James Finley, defense's deputy undersecretary for acquisition and technology.

The main reason why mistakes persist is that no real sanctions exist for agencies that consistently overstate their small-businesses awards. The errors are unlikely to be caught, officials say, because the SBA lacks the staff and the clout to stop them.