In a newly published report outlining the failure of the Small Business Administration (SBA) to properly monitor or penalize Fortune 500 companies, like Verizon Communications Inc. (NYSE:VZ) and Raytheon Company (NYSE:RTN), who pilfer contracts otherwise promised to small businesses in America, Charles Tiefer, a Maryland Professor of law and a governmental contract specialist, says the system is broken and in need of overhaul.

Read professor Charles Tiefer’s report at: asbl.com

Problems for Small Business Administration

The report cites three major problems that plague the system, including:

  • The current practice of large contractors such as Verizon Communications Inc. (NYSE:VZ), Citigroup Inc (NYSE:C) etc, acquiring small businesses to retain contracts.
  • Small businesses as they grow larger are not “early graduated” out of the small business category, thus retaining small business contracts.
  • Vast sums of Federal payments to businesses should be, but are not, counted when figuring the 23% goal for small business.

Tiefer believes that while the law calls for a 23% goal, in fact, the number actually realized may be in the single digits. “By any objective standard or measurement,” says Tiefer, “the real number may be well less of 10%. Worse, the SBA knows this and continues to obfuscate the real data. A simple question that goes unanswered is how can it be that more than 200 Fortune 500 companies continue to receive billions in SBA contracts?”

“This abuse of the contracting system has been going on for some time and the SBA seems unwilling to take corrective measures,” says Professor Tiefer. “The facts are that federal law requires small businesses in the United States to receive 23% of all contracts awarded by the federal government. In fact, because abuse is rampant, and unchecked by the SBA, barely a fraction of contracts actually end up with small business. We believe this [is] fraud, and there is no other way to define it. Small businesses in America have been cheated out of billions, if not a trillion dollars. This abuse must stop.”

To underscore the pernicious nature of federal contracts being awarded improperly to Fortune 500 companies such as Verizon Communications Inc. (NYSE:VZ) in America, SBA Inspector General, Peggy Gustafson testified, “The bottom line is that there is a real societal cost when ineligible companies improperly profit from preferential contracting through fraud and illegal conduct…This fraud thwarts congressional intent behind these programs and deprives legitimate small businesses of contracting opportunities.”

Tiefer’s report includes facts from a 2004 SBA Office of Advocacy study finding many cases of small business contracts going to large companies, including very familiar names such as Verizon Communications Inc. (NYSE:VZ), Citigroup Inc (NYSE:C), The Boeing Company (NYSE:BA) etc, on the federal procurement roster. “Billions of dollars are at stake for small businesses in America,” says Tiefer. “They are, frankly, being cheated out of their opportunity to provide goods and services to the American people because large companies such as Verizon, Citigroup, Boeing etc, have figured out how to manipulate the system. Worse, when people such as Lloyd Chapman, the head of the American Small Business League and a true champion in this field try to expose these unsavory practices, they are held up to scorn and ridicule.”

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Verizon Citigroup Fortune 500

A monetary figure of $1.1 trillion dollars has been cited as the 23% goal for small business contracts from the federal government, yet, the actual number of dollars going to small businesses in America is well short of that number and percentage, says the report. “At the end of the day, there should be federal and public concern, and perhaps outrage, that a system can remain so broken through numerous congressional hearings, many in-depth media reports and both internal and external investigations of the SBA.” Tiefer concludes, “it is time to take action.”

Charles Tiefer is a nationally recognized expert in government contract law and co-author of, Government Contract Law in the Twenty-First Century, he has also served as a Commissioner on the Commission on Wartime Contracting in Iraq and Afghanistan.