08/01/2008 05:12 am ET | Updated May 25, 2011

The Diversion of Small Business Contracts to Large Corporations is Alive and Well

Last week, Frank Bass from the Associated Press reported that within the small federal contracting world location might mean everything. In fact, in the article Bass stated, "small firms that want to do business with the federal government must keep three cardinal rules in mind: Location, location, location."

He went on to report that firms within 50 miles of the White House receive nearly $1 of every $3 in federal contracts given to small firms. In the story Bass wrote, "And small companies competing for federal contracts in the other 99.8 percent of the United States? They may pay the same taxes, do the same type of work and produce the same result, but the deck is stacked against them."

Geography may play a key role in the distribution of federal small business contracts, but it is not the only factor stopping the 99.8 percent of companies located outside of the beltway from competing for contracts with the federal government.

Since 2002, there have been more than a dozen federal investigations, which have all found large corporations to be the actual recipients of federal small business contracts.

In fact, in Report 5-15 from the United States Small Business Administration (SBA) Office of Inspector general states, "One of the most important challenges facing the Small Business Administration (SBA) and the entire Federal Government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards."

Fact of the matter is, geographic location is not the only major contributing factor in determining whether or not small businesses are able to compete effectively for contracts with the federal government, it's also the diversion of those contracts to large corporations.

The federal government has a goal of awarding 23 percent of the total value of all prime and sub contracts to small businesses. The problem is, they are not hitting the goal, not by a long shot. In fact, the American Small Business League (ASBL) has estimated that between 50 and 86 percent of all federal contracts intended for small businesses end up in the hands of Fortune 500 corporations and other large firms in the United States and even Europe.

Recently, the United States Department of Interior (DOI) Office of Inspector General released a report, declaring that the DOI had overstated the achievement of its small business goals and the federal governments small business goals by counting contracts to Fortune 500 corporations towards its small business procurement goal.

The DOI IG reported stated that the DOI had coded $5.7 million in small business contracts to large corporations. In response the ASBL conducted its own review of the DOI's small business contracting numbers. By examining just the top 100 recipients of federal small business contracts the ASBL found more than $430 million in small business contracts awarded to large corporations. Some of the firms included were: Booz Allen Hamilton, Sprint Communications Company, Perot Systems Government Services, Hewlett Packard Company, and KPMG.

Frankly, I don't know what's scarier... the fact that large corporations are receiving a lion's share of federal small business contracts or that the diversion of federal small business contracts to large corporations has been going on since 2002, and the government has done nothing to stop it.

As ASBL President Lloyd Chapman stated, "This is obviously intentional felony contracting fraud on the part of large businesses and federal contracting officials. It's time for the FBI to investigate this and it's also time for Congress to pass legislation to stop the wholesale diversion of federal small business contracts to corporate giants. Any member of Congress that won't support legislation to end fraud and abuse in federal contracting should be voted out of office."

Mr. Chapman has a point, given the fraud, abuse, loopholes, and lack of oversight small business owners have witnessed over the last seven years. Small businesses are the backbone of our nation and it is time for the government of the United States to support its backbone.