New Federal Policy Could Create Billion-Dollar Loophole for Corporate Giants

House Republicans have issued a last minute proposal to the Small Business Reauthorization Act. The new policy would repeal an existing Federal policy that prevents large companies from using their franchises as fronts in order to obtain small business contracts. Under the new policy, franchises of large companies would be granted small business status.

ASBL President Lloyd Chapman is concerned that this is an attempt by the government to create another loophole, "I've seen this type of thing before - for over ten years the government has consistently tried to pass policies that allow them to report contracts to larger and larger companies as small business awards.

"This policy is a recipe for disaster. If it passes, I guarantee that next year, you'll see hundreds of Fortune 1000 companies set up their divisions as franchises in order to improperly receive Federal small business contracts." Chapman noted that the SBA tried to pass a similar policy last summer that would have allowed a venture capital company to be considered a small business if it owned 51% of a small firm.

Small Business Contracts Plunge to Record Low

The latest statistics on Federal small business contracting show the lowest participation by small businesses in recent history. According to current government figures, small businesses received a meager 17% of the total value of Federal contracts during fiscal year 2005. This number represents the lowest level of Federal contracts that have been awarded to small businesses in the past 20 years. The Small Business Act of 1953 requires that 23% of Federal contracts goes to small businesses.

Justice Department Fights to Protect Name of Fraudulent Contractor

The Justice Department, acting on behalf of the Small Business Administration, has responded to a suit filed in Federal court under the Freedom of Information Act by the American Small Business League. The government is refusing to release the name of a contractor that was found to be intentionally misrepresenting itself as a small business in order to illegally receive Federal small business contracts.

Embattled SBA Administrator Leaves Agency in Shambles

The five year reign of outgoing SBA Administrator Hector Barreto has left the agency a gutted shell of what it was when he took office in 2001. The SBA's dismal performance under Barreto's leadership has been chronicled in ten Federal investigations and two private studies that uncovered fraud, abuse, and lack of proper oversight in virtually every major SBA program. And, as Barreto allowed the SBA's operating budget and staff to be cut every year, a government-wide survey showed that the morale of SBA employees plummeted to the lowest level of any Federal agency.