Lawsuit calls on SBA to stop ‘deceptive’ practices for reaching compliance goals

A small business advocacy group is suing the Small Business Administration for what it calls “creative accounting” and misrepresentation of federal contracting goals.

The American Small Business League (ASBL) filed a lawsuit  May 3 against the SBA, claiming the agency has adopted the practice of awarding small business contracts to Fortune 500 companies and “inflating the percentage of awards to small businesses to fabricate the government’s compliance with the small business goals by using a much lower acquisition budget.”

“As has been the case in all previous years in which the SBA has released an annual goaling report, the SBA’s assertion that the percentage of the total value of all prime contract awards awarded to small businesses met or exceeded the congressional mandate of 23 percent is false,” court documents state. “SBA can only make this statement by creating, through agency fiat, a class of government contracts which are, solely in the view of the SBA, subject to exclusion from being considered as part of ‘the total value of all prime contract awards’ as stated in the Small Business Act. Although the language of the statue is crystal clear, every year the SBA redefines ‘total value’ as meaning total value minus the contracts SBA decides to exclude from the equation.”

But John Shoraka, SBA’s associate administrator of Government Contracting and Business Development, told Federal News Radio that SBA’s exclusion practice is:

  • A continuation of the previous administration’s rules.
  • Being updated to be more inclusive.

“When we came in as an administration in 2009, we wanted to be able to continue to measure apples to apples to apples, to see if we’re actually progressing,” Shoraka said. “We kept those exclusions as they stood when we arrived, to make sure we weren’t accused of sort of fiddling with the numbers and making it look like we were having success.”

‘Misrepresent and fabricate’

SBA in March released its annual report card on small business federal contracting. Fiscal 2015 was a record-setting year, according to the report, with the government for the first time reaching its 5 percent women-owned small business [WOSB] contracting goal since the bar was set in 1996.

The government spent $17.8 billion working with WOSBs, according to the report. The government also reached — and in fact surpassed — its 23 percent overall small business procurement goal by spending 25.75 percent, or $90.7 billion on small business contracts.

As a whole, the government received an “A” on its report card for fiscal 2015.

If the SBA doesn’t meet its goals, the lawsuit said, under the Small Business Act the agency must report on why it failed to meet the goals, as well as provide a plan to achieve them the next year.

Lloyd Chapman, ASBL president, said in an interview with Federal News Radio the administration’s practice of excluding certain contracts is a way to “misrepresent and fabricate” compliance with those goals.

“As a result, failed goals are not reported, no analysis is done, no remediation plans are created, and Congress’s clear directive that the SBA continue to monitor and improve its small business participation programs is left unheeded,” the lawsuit states.

But the SBA is monitoring small business policies, Shoraka said. When the National Defense Authorization Act of 2013 came out, it directed SBA to re-evaluate all exclusions.

“There were a number of things that were eventually put back in,” Shoraka said. “For whatever reason, there were really small agencies that had been included on this exclusion list. That was the first thing we adjusted. Then the other thing we noticed is that leases had been excluded … leases like commercial vehicle leases. Those had been excluded and we put that back in, in 2015.”

Shoraka said overseas contracts also needed re-evaluation. SBA consulted its Office of General Counsel on what, if anything, should still be excluded under that category.

Other than two instances with the Defense Department — contingency operations and the Status of Forces Agreement — the overseas contracts category  was removed from the exclusion list.

“We worked with all of our sister agencies, especially the ones that are going to be impacted most significantly, like the Department of Defense, U.S. Agency for International Development, the State Department,” Shoraka said. “And we made sure that their acquisition folks understood what the change meant, how that change would be implemented and we worked very closely with the Office of Federal Procurement Policy in the timing; just announcing ahead of time so nobody’s surprised, phasing it in and making sure that it became effective for 2016.”

This will be applied to the 2016 report, Shoraka said, and will likely have a  negative 1.5 percent to negative 2 percent impact on the overall percentage of small business government contracts.

Artificial inflation

Chapman and the small business league aren’t the only ones who’ve put small business contracting under a microscope.

Rep. Steve Chabot (R-Ohio), chairman of the Small Business Committee, introduced legislation to change the way SBA counts agency spending with small firms.

Tony Franco, a partner with the law firm of PilieroMazza in Washington, said he looked at the methodology of the SBA report, and said it was confusing in part because it appears the agency is counting contracts under multiple categories, such as an 8(a) [small, disadvantaged] business being counted for both the 8(a) pool and small business pool.

Franco said he spoke to an SBA official about this methodology.

“I think that most small businesses that are out there would question whether these agencies should be getting such high scores, when using methodology that seems to be artificially inflating the numbers,” Franco said. “Not intentionally, but it’s clearly making it look like multiple goals are being met when it just happens to be purely happenstance.”