20100625 2009 analysis 4ASBL Report: Small Business Contract Recipients FY 2009 !AmericanSmallBusinessLeague"! 3910Cypress"Dr,"Petaluma,"CA"94954|"tel:"707!789!9575fax:"707!789!9580|"www

-‐ American Small Business League -‐ 3910 Cypress Dr, Petaluma, CA 94954 | tel: 707-‐789-‐9575 fax: 707-‐789-‐9580 | www.asbl.com

Lloyd Chapman | President American Small Business League

[email protected] | www.asbl.com

2010

ASBL Report: Small Business Contract Recipients FY 2009



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After examining a sampling of the top 100 recipients of federal small business contracts for fiscal year (FY) 2009 as derived from the Federal Procurement Data System – Next Generation (FPDS-‐NG), the American Small Business League (ASBL) has made a determination that more than 65 percent of the total volume of contract dollars coded as going to small businesses actually went to large businesses that would not currently qualify as small businesses and in some cases went to Fortune 500 firms. In its analysis, the ASBL determined that 60 of the top 100 small business contract recipients for FY 2009 were actually large firms, with one “anomaly” to be discussed later. Furthermore, the large recipients of federal small business contracts actually received approximately 65 percent of the total dollar volume awarded to the top 100 during FY 2009. Additionally, in an examination of the top 10 recipients of federal small business contracts, the ASBL identified seven large businesses, which received approximately 70 percent of the total volume of contract dollars awarded to the top 10 recipients of small business contracts during FY 2009. As a series of federal investigations over the past decade have shown, the vast majority of small business contract recipients are not actual small businesses, but large companies.i These investigations have indicated that these abuses have occurred as a result of outright fraud and abuse, loopholes in the current law, and a general lack of oversight over federal small business contracting programs. The FY 2009 small business contract recipient data highlights, for another year, that the government is not meeting its congressionally mandated, governmentwide small business goal of 23 percent. Additionally, the data indicates that the government is inflating the achievement of its small business goal by diverting billions of dollars in small business contracts to Fortune 500 corporations and other clearly large businesses.

Overview

One of the most important challenges facing the Small Business Administration and the entire Federal government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards.”

- Report 5-15, SBA Office of Inspector General



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In examining the Top 100 small business contract recipient data, there are several categories of businesses represented, not all of them small business. The first and easiest category to explain/identify is comprised of legitimate small businesses. Within the top 100 small business contract recipients, there are a mere 39 legitimate small businesses. The second and largest category of businesses found within the data is comprised of large firms.ii There are 60 large firms within the top 100 recipients of federal small business contracts, which can be examined in several separate groups. The first group is entirely made-‐up of clearly large businesses, which are not small under any North American Industry Classification System (NAICS) code. Additionally, these companies have more than 1500 employees and report more than $38 million in annual revenue. For example, VSE Corporation, the number one recipient of small business contracts, cannot be considered a small business by any standard of measurement, but during FY 2009, VSE was awarded more than $627 million in small business contracts. The second group of large companies is comprised of subsidiaries of large or Fortune 500 firms. These companies, under the current law, once bought by a large firm must be reregister as “not a small business” within 30 days, and as a result would not qualify as a small business. Current SBA policy has allowed for long term contracts held by these small businesses to be counted towards the small business procurement goal until 2012. However, the ASBL has observed situations, in which a small business is acquired, reregistered, and yet continues to bid-‐on and win federal small business contracts. Two examples of this within the top 100 recipients of small business contracts are: Datapath Inc., a subsidiary of Rockwell Collins; and QSS Group, which became a subsidiary of Perot Systems in 2004 (Perot Systems was later acquired by Dell Computer in early 2010). Data in FPDS-‐NG indicates that both Datapath and QSS continue to win new small business contracts and are listed as small businesses. The third group of firms in the large business category fall into a grey area. This grey area consists of businesses that are large under certain NAICS codes and small under others.

The Data

Large Corporations Listed in 2009 Small Business Data Lockheed Martin Boeing Raytheon L-‐3 Communications British Aerospace (BAE) Northrop Grumman General Electric Booz Allen Hamilton Thales General Dynamics 3M Company Hewlett-‐Packard AT&T Rolls-‐Royce Dell Computer Corporate Express Office Depot Xerox Science Applications International Corp. (SAIC) Harris Corporation Honeywell International Inc. Motorola Textron Inc. PriceWaterhouseCoopers LLP Computer Sciences Corp. (CSC) * Please note: This does not represent the full spectrum of large, household names found within the government’s 2009 small business contracting data.



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Over the years, the data has consistently shown that certain companies, which may have outgrown their small business size standards, have been able to reregister as a small business using different NAICS codes in order to retain small business size status. Within the FY 2009 data, a prime example is GTSI Corporation. In 1997, the Air Force determined that GTSI no longer qualified as a small business. Under GTSI’s current primary NAICS code, which has a small business size standard of 100 employees or less, the company is a large firm. However, GTSI has been able to win contracts under manufacturing NAICS codes, which carry a size standard of 1500 employees, even though they are not a manufacturing business. The problem occurs when companies such as GTSI are consistently allowed to bid on and win contracts awarded under NAICS codes for which do not qualify as small. The last category of businesses found within the top 100 small business contract recipient data can otherwise be referred to as “anomalies” or “other.” Within the Top 10 small business contract recipients, “Miscellaneous Foreign Contractors” is ranked 6th, and “Small Business Consolidated Reporting” is ranked 9th. Every year, going back to at least 2004, one of the largest recipients of small business contracts has been “Miscellaneous Foreign Contractors.” According to language in the Federal Acquisition Regulations (FAR) majority foreign owned firms are not eligible to bid on or be awarded small business contracts, yet “Miscellaneous Foreign Contractors” continue to garner hundreds of millions of dollars, even billions of dollars, in federal small business contracts. There is no data available to specify which firms or businesses fall within these two categories, and no way of determining if these firms are actually small.iii Another problem arises when the government artificially inflates the volume of contracts awarded to small firms as a means of bolstering the achievement of its 23 percent small business goal. In one case analyzed by the ASBL, researchers identified a major issue with contracts awarded to Management Solutions, LC. ASBL identified Management Solutions, LC as #28 on the list of the top 100 recipients of federal small business contracts. The ASBL found that Management Solutions, LC is a legitimate small business with 14 employees and approximately $2 million in annual revenue. When the ASBL’s analysis was conducted, data within a third party resource and FPDS-‐NG indicated that Management Solutions had received a $174 million contract from the Defense Logistics Agency (DLA). However, USASpending.gov indicates Management Solutions, LC was only awarded $2.7 million in contracts during FY 2009. Moreover, according to USASpending.gov, the $176 million contract awarded to Management Solutions was actually a $176,000.00 contract.iv While the SBA continues to claim that situations like the aforementioned are simple miscoding errors, federal investigations have clearly indicated that these abuses are the result of fraud, loopholes and lack of oversight. In March of 2010, the Small Business Administration’s (SBA) own inspector general released an investigation which found the SBA awarded more than 30 percent of its own contracts to large businesses, and 92 percent of the contract actions contained blatant errors. Additionally, the report found that during FY 2009 the percentage of misleading data jumped to a record 97 percent.v



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Note: The data above and below is derived from FPDS-‐NG. Analysis of large recipients of federal small business contracts by rank: #1 -‐ VSE Corporation, DUNS 049997380 – ($627,823,829.00) #3 – Sierra Nevada Corporation, DUNS 094373495 – ($420,491,600.00) #4 – Bertucci Contracting Company LLC, DUNS 933308462 -‐ ($417,151,798.00) #6 – Miscellaneous Foreign Contractors, DUNS 123456787 – ($342,838,169.00) #7 – Sensor Technologies, DUNS 845451228 – ($331,959,647.00) #8 – Lakeshore Engineering Services, DUNS 838767960 -‐ ($331,089,166.00) #9 – Small Business Consolidated Reporting, DUNS 136721201 -‐ ($331,082,970.00) #11 – Aegis Mission Essential Personnel LLC, DUNS 142423990 – ($317,725,998.00) #12 – Chugach Government Services Incorporated, DUNS 556637366 – ($280,967,012.00) #13 – Eyak Technology, LLC., DUNS 112710947 – ($260,235,942.00) #14 – JVYS, Inc., DUNS 110483521 – ($258,415,426.00) #15 – Datapath, Inc., DUNS 015570583 – ($250,795,321.00) #16 – Apptis (McClean) Inc., DUNS 175320761 – ($236,650,092.00) #18 – SGT, Inc., DUNS 878901396 – ($231,347,523.00) #19 – World Wide Technology, DUNS 614948396 – ($217,460,358.00) #23 – Amtec Corporation, DUNS 884356429 – ($190,259,832.00) #26 – GTSI Corporation, DUNS 107939357 – ($182,400,552.00) #28 – Management Solutions, L.C., DUNS 883466872 -‐ ($176,053,814.00)** http://www.usaspending.gov/fpds/fpds.php?reptype=r&detail=-1&sortby=f&datype=T&reptype=r&database=fpds&database=fpds&parent_id=375163&fiscal_year=2009&record_num=f500 #29 – TYBRIN Corporation, DUNS 037305646 – ($172,989,266.00)

Results from FY 2009 small business contract data analysis: 61 of the Top 100 recipients are large firms = 61% Dollar Total of Top 100 = $16,653,237,891 Dollar Total of 61 Large Firms = $10,743,000,117 Percent of Dollar Total to Large Firms = 64.5% 7 of the Top 10 recipients are large firms = 70% Dollar total of Top 10 = $4,040,019,746 Dollar total of 7 Large firms = $2,802,437,179 Percent of dollars in Top 10 going to large firms = 69.4%



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#30 - LATA/Parallax Portsmouth, LLC, DUNS 175892327 – ($169,871,321.00) #34 – Softmart Government Services, DUNS 073366119 -‐ ($160,522,696.00) #36 – ASRC Aerospace Corp., DUNS 004435470 – ($157,574,546.00) #37 – TreviIcos South, Inc., DUNS 008618451 – ($152,696,309.00) #38 – AeroVironment Inc., DUNS 058024456 – ($151,591,369.00) #39 – Government Acquisitions Inc., DUNS 603814054 – ($146,617,681.00) #40 -‐ Mar-‐Vel International, Inc., DUNS 182830158 – ($143,423,978.00) #41 – Centech Group Inc., DUNS 191341627 – ($142,594,908.00) #42 – Telos Corporation, DUNS 056280621 – ($142,122,484.00) #43 – Chenega Federal Systems, LLC., DUNS 194506395 – ($141,793,446.00) #45 – Alutiiq International Solutions, Inc., DUNS 795021083 (168378912) -‐ ($138,142,285.00) #46 – CCI Group, LLC., DUNS 780078379 – ($138,071,157.00) #48 – Chugach Industries, Inc., DUNS 142120745 – ($135,574,072.00) #51 – QSS Group, Inc., DUNS 840015911 – ($127,354,488.00) #52 – Procurenet Inc, DUNS 044081388 – ($126,642,546.00) #53 – TeleCommunications Systems Inc., DUNS 196970503 – ($123,786,933.00) #54 – Chenega Technology Services Corporation, DUNS 048418730 – ($122,347,927.00) #57 – FSS Alutiiq Joint Venture, DUNS 135252950 – ($120,246,942.00) #58 – Catapult Technology, LTD., DUNS 958045346 – ($118,730,731.00) #59 – Vion Corporation, DUNS 098695323 – ($117,992,894.00) #60 - Viatech Incorporated, DUNS 796028165 - ($113,549,663.00) #61 – STG International, Inc., DUNS 179570403 – ($113,536,920.00) #65 – NCI Information Systems, Inc., DUNS 620864504 – ($111,756,021.00) #66 – Abacus Technology Corporation, DUNS 126505833 – ($111,701,906.00) #67 – ITS Services, Inc., DUNS 782826903 – ($111,278,724.00) #68 – Oberon Associates, Inc., DUNS 031742971 – ($110,315,499.00) #69 – Carahsoft Technology Corporation, DUNS 088365767 – ($109,325,526.00) #70 – Alutiiq International Solutions, Inc., DUNS 795021083 (168378912) -‐ ($108,672,205.00) #71 – Mythics, Inc., DUNS 013358002 – ($108,313,892.00) #74 TKC Integration Services, LLC, DUNS 141089040 – ($106,208,052.00) #75 – SupplyCore Inc., DUNS 116057019 -‐ ($105,981,680.00) #76 – Chugach World Services, Inc., DUNS 800205952 – ($105,248,684.00) #77 – American Science and Engineering Inc., DUNS 001767763 – ($104,758,488.00) #79 – STG International, Inc., DUNS 179570403 – ($104,239,737.00) #82 – Chugach Management Services Incorporated, DUNS 798306601 – ($103,127,058.00) #83 – Sparta Inc., DUNS 038267076 – ($103,065,626.00) #87 – Laughlin, Marinaccio & Ownes Inc., DUNS 931898969 - ($99,691,138.00) #88 – Presidio Networked Solutions, Inc., DUNS 154050959 – ($98,638,855.00) #91 – Phonak Incorporated, DUNS 602705550 – ($94,108,109.00) #92 – SI International, Inc., DUNS 182993170 – ($94,106,340.00) #93 – Petro Star, Inc., DUNS 131463705 – ($94,039,496.00) #100 – National Industries for the Blind, DUNS 001672120 – (88,180,530.00)



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**This entry stands as an anomaly. Management Solutions is listed in the FPDS-‐NG data as having received over $176 million in small business contracts for FY 2009, while they are a small business, USASpending.gov shows them to only have received over $2 million in contracts for FY 2009, which is consistent with previous years data.

The government historically has a poor track record of meeting its 23 percent government-‐wide small business procurement goal. Since 2003, more than a dozen federal investigations have uncovered billions of dollars in small business contracts that have been diverted to Fortune 500 corporations like Lockheed Martin, Boeing, Raytheon, Thales Communications and British Aerospace (BAE). For years, the SBA has claimed to have fallen short of its 23 percent goal by as little as a fraction of a percent. For example, for FY 2008 the SBA claimed the government missed its goal by only 1.5 percent. By analyzing small business contracting data, the ASBL has estimated that the government awarded less than 5 percent of government contracts to legitimate small businesses during FY 2008. That said, the government’s near achievement of its goal is based on “creative accounting” and does not reflect the true volume of dollars flowing into the small business community. The SBA’s process for calculating the achievement of the government’s 23 percent goal is based on several faulty accounting practices. First, the SBA calculates its percentage by using a figure referred to as “Total Small Business Eligible Dollars.”vi The problem is that the Small Business Act clearly states, “The Government-‐wide goal for participation by small business concerns shall be established at not less than 23 percent of the total value of all prime contract awards for each fiscal year.”vii For example, in FY 2008 the SBA claims small businesses received 21.5 percent of the government’s purchases, which was approximately

Inflated Numbers

“If SBA had put as much effort into verifying whether the company currently met the award's size standard as it put into trying to find ways to earn credit toward its small business goals, then perhaps the contract action would have been awarded to a company that was legitimately small at the time of the award.”

- Report 5-15, SBA Office of Inspector General



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$93 billion out of a total of $434 billion; however, according to FPDS-‐NG the federal government actually spent approximately $536 billion on prime contracts for FY 2008, leading to a $100 billion dollar discrepancy. If the percentage were calculated based on the actual total volume of contracts awarded by the federal government ($536 billion), the federal government’s claims of 21.5 percent drop to 17.5 percent of the government’s purchases actually awarded to small businesses. When all of the large firms found within the recipients of small business contracts are taken into account, conservatively 60 to 86 percent of all small business contracts actually go to large businesses. As a result, the government’s achievement falls even further to the range of 3 to 8 percent in prime contracts that are actually going to small businesses. Please refer to the chart below for additional information on the government’s inflation of its small business contracting data.

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In conclusion, the Government’s FY 2009 data appears to fall in line with small business contracting data from the past decade, in which the majority of small business contracts actually went to large firms. During FY 2009, 60 percent of the Top 100 small business contract recipients were large firms, which received 65 percent of the total dollars. The ASBL has been notably successful in removing Fortune 500 firms and large prime contractors out of the Top 100 small business contract recipients, and in some cases, out of the small business data altogether. It must be noted that many of these firms still wrongfully receive millions of dollars in small business contracts every year, yet fall outside the top 100 recipients of small business contracts. The ASBL makes the following recommendations on how to improve the situation and increase the amount of contracts going to small businesses:

1. Place a warning on Central Contractor Registration (CCR) informing contractors of the penalties for misrepresenting themselves as a small business. Such penalties, as outlined in section 16(d) of the Small Business Act, include up to a $500,000 fine per instance and up to 10 years in prison per instance.

2. Congress needs to pass H.R. 2568, the Fairness and Transparency in Contracting Act, which would close a major loophole in the current law, or the President could issue an executive order stating that contracts awarded to publicly traded firms or their subsidiaries cannot be counted towards the governmentwide 23 percent goal for small businesses.

3. Restore all of the data to the public databases, which would include: Restoring the category “is small business,” parent company name and DUNS number in the FPDS-‐NG database, and restoring the number of employees and annual revenue statistics in CCR. This would increase transparency and allow for watchdog groups, the public and members of Congress to provide greater oversight and stop fraudulent activity.

4. Abolish the Comprehensive Subcontracting Plan Test Program. 5. Do not allow the definition of a small business to be changed from “independently

owned.”

Conclusion and Recommendations

“It is time to end the diversion of federal small business contracts to corporate giants."

- Senator Barack Obama, February 2008



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6. Restore the budget and staffing at the SBA in order to bolster the small business programs and reopen SBA offices that were closed by the Bush administration.

7. Implement the 5 percent set-‐aside goal for women-‐owned firms across all industries.

Endnotes: i http://www.asbl.com/documentlibrary.html ii For the purpose of this analysis, Alaska Native Corporations (ANCs) are included here as large firms if they do not meet the size standards under the NAICS code for which the contract was awarded. Due to the current laws allowing ANCs to be of any size, based on number of employees or annual revenue, ANCs are technically small businesses. However, the ANCs listed in the Top 100 far surpass the size standards under any NAICS code. iii A story written by John Stanton in May 2005 titled “Rumsfeld’s mystery contingency operations,” that ran at www.onlinejournal.com, was able to identify several of the companies listed as small under the classification of “Miscellaneous Foreign Contractors” to in fact be large Fortune 500 defense contractors. iv As of June 24, 2010, the $174 million contract still appears in several third party databases that have direct access to the XML data feed on FPDS-‐NG. However, the contract that has PIID SPM4A609C0103, whether it is for $174 million or $174,000.00 no longer shows up in FPDS-‐NG’s database at www.fpds.gov. v http://www.sba.gov/idc/groups/public/documents/sba_homepage/oig_report_10-08.pdf vi http://www.sba.gov/idc/groups/public/documents/sba_homepage/fy2008official_goaling_report.html vii http://www.smallbusinessnotes.com/fedgovernment/sba/sbact.html

20100625 2009 analysis 4ASBL Report: Small Business Contract Recipients FY 2009 !AmericanSmallBusinessLeague"! 3910Cypress"Dr,"Petaluma,"CA"94954|"tel:"707!789!9575fax:"707!789!9580|"www

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