The Senate Subcommittee on Contracting Oversight held a hearing to examine the diversion of federal contracts for small businesses to large companies.

Claire McCaskill

While the federal government is supposed to award 23 percent of its contracts to small businesses, many of the contracts classified as small business contracts often go to major corporations.

“Several decades ago, Congress passed legislation establishing annual goals for small business contracting,” said Sen. Claire McCaskill, D-Mo., who chairs the subcommittee, during her opening statement Tuesday. “That goal is now set at 23 percent. Last year, the government announced that it had reached 22.7 percent. This is a laudable achievement. Unfortunately, it is also an empty achievement. Many of the contracts that the government counts when it tallies the awards it says have gone to small businesses are in fact performed by large businesses. Today, we are going to examine how it is that a system that should be helping small businesses is in fact doing little more than helping the government play a numbers game.”

She noted that the Small Business Administration sets size standards for businesses for each of more than 1,200 industries defined under the North American Industrial Classification System codes. Contracting officers are supposed to use the size standards for specific NAICS codes to determine what size business best fits the contract, and award the contracts accordingly. But the SBA has created a special exception for manufacturing companies that allows much larger businesses to qualify for small business contracts.

Joseph Jordan, the associate administrator for the SBA’s Office of Government Contracting and Business Development, said in his testimony that the agency has been working to combat waste, fraud and abuse. He also noted that sometimes small businesses outgrow the original size under which the contract was awarded. “Small businesses sometimes outgrow their size standards during the life of a contract,” he noted. “Size determinations are fixed at the time of the offer, so it is possible for agencies to get small-business credit for the later years of a contract when the contractor is no longer small.”

The SBA requires firms to recertify themselves as small businesses before the sixth year of any long-term contract, and within 30 days in the event of a merger or acquisition.

Mindy Connolly, chief acquisition officer at the General Services Administration, noted that some companies can be classified as small in one contract procurement and “other than small” for another at the same time, depending on the nature of the work for the government.

A Presidential Interagency Taskforce on Federal Contracting Opportunities for Small Business has recommended providing contractors with stronger rules, developing a more accountable workforce, improving outreach and making better use of the data. The GSA plans to expand its outreach to small businesses to let them know more about contracting opportunities.