Government Procurement and Small Business

To many small business owners, the dream of a nice, lucrative government contract is enticing to say the least. Sure, the process is long and arduous, there are stacks of forms that have to be filled out, you have to comply with a variety of regulations, etc., but the playing field is level and you have a fair chance to compete with other small businesses for those government contracts set aside by law for small businesses. And even if there are some big companies pretending to be small to get this business, they get rooted out and are barred from doing business with the government again, right? 

That’s the PR version of the process, the bright and shiny version of what should happen, of what would happen if money and politics were taken out of the process, the version that gets you in the door. Unfortunately, it’s also a pretty misleading version as the truth is, in too many cases, radically different. 

Back in July, an abusive practice known as size misrepresentation, which is one of the biggest problems facing the US Small Business Administration (SBA), was been brought to the surface yet again as an Air Force contract with Unisen, Inc., a fast-growing privately-held fitness equipment company with over 500 employees, was successfully challenged by Raul Espinosa, a prominent small business owner and advocate. This was the third time Espinosa challenged the contract since 2005, when he first exposed the Air Force’s abusive contracting. 

You may think this is an isolated incident. It’s not. According to Paul Murphy, CEO of Eagle Eye, "In FY 2008 alone, a total of 47 multi billion-dollar firms were officially listed as small businesses in the government's main contract database." He added, "These 47 firms accounted for over $3 billion of the government's contracts reserved for small businesses given out in FY08." 

Lloyd Chapman, President of the American Small Business League (ASBL) put the problem bluntly: "In excess of $100 Billion of Federal contracts reserved for small businesses are being taken—illegally—by large businesses which have misrepresented their size.” 

That may be, but what of Espinosa’s size protest victory over the Unisen contract? According to Espinosa, winning the fight does mean you get the contract. “When you go to court and you win, you think you will get what you are after, but that is not the way it works here.” What happens is that the SBA rules in your favor but then nothing is done to enforce that ruling. “The size protest process does not deter, does not prevent and does not punish companies, which break the law,” said Espinosa. "The current size protest process is broken and in need of revamping. Its benefits are only illusionary." 

Without a means for sanction and enforcement, size protests mean little more than some added legal fees to huge companies intent on taking small business contracts, but what’s worse is the fact that many small businesses are barred from certain contracts due to Federal Acquisition Regulations (FAR), which exempt small businesses from the statutory provisions of the Small Business Act. In other words, the Small Business Act says that these small businesses are eligible to bid on these contracts, but the FAR denies them that eligibility. “Over the last decade, $640 billion in federal contracts have been diverted, illegally, away from small businesses,” said Espinosa. "Bureaucrats could solve the abuses, but they have been unwilling to let entrepreneurs help them with out-of-the-box solutions." 

One of the “out of the box” solutions would be to actually hold these companies accountable for breaking the law, which is unlikely given the list of companies involved. If any proof is needed that this is a political rather than a legal problem, this is it. Lockheed Martin, Northrup Grumman, Humana, IBM—it reads like a who’s who of big, politically connected businesses, most of which are major government contractors in their own right, providing vehicles, weapons, IT and other services and equipment to the government. Under the current system, if you are going after a small business set-aside government contract, these are the players—through front companies, affiliates, subsidiaries—that you could be going up against. 

This is not a new problem, nor did it start with the last administration, or even the one before that. Arrangements like these take decades to crystallize, for the culture to become so entrenched that even those who win their cases rarely see the contracts they fought for. So what can be done? 

Espinosa, with his organization, The Fairness in Procurement Alliance (FPA), is working with the SBA to get these Federal Acquisition Regulations overturned, and that will be a big help, but more needs to be done. This is a problem that needs exposure. Every time your company is turned down, find out who won and if you can, challenge them. Go public with that challenge and make sure that the politicians with power over these issues are put on the spot. Remember, all government decisions are political and politics is measured in terms of risk. Our representatives and senators need to feel that allowing this to continue is a far riskier proposition for them, for their continued political careers, than changing things for the better. As sad as this may be, they need a reason to do the right thing. 

For small business to thrive, for it to get what it is legally due from the government, small business owners need to act. The Obama Administration has pledged transparency, and Espinosa hopes that will include the issue of government procurement. If it does, then the wrongdoers can be rooted out, prosecuted and barred as they should be, but it will take pressure for you, the small business owner, through your calls and emails and letters to your legislators and the President to affect the kind of political change we need to make all that happen. Get started today at House.gov and Senate.gov

We will be keeping you updated on this issue, so stay tuned.