Large portions of federal contracting budgets earmarked for small, disadvantaged businesses are going to companies which are neither, but which are merely minority-owned, according to a government watchdog.
Nearly one in three dollars that the federal government uses to meet its quota for buying from disadvantaged businesses didn’t actually go to such firms, usually instead going to ones that were once in the “training wheels” program, but have since outgrown it.
“Federal agencies received credit towards their small business goals for contract actions awarded to ineligible 8(a) and HUBZone firms,” the inspector general of the Small Business Administration found, referring to the programs for race, gender, veterans and impoverished-area set-aside programs.
The government’s multiple databases tracking contracting failed to talk to one another, and bureaucrats failed to check into firms’ status before sending money. Those errors worked in the agencies’ favor, as they struggle to find ways to ascribe a mandated 23 percent of their spending to disadvantaged firms.
By simply comparing three databases, the IG readily “identified over $1.5 billion dollars in contract actions, for which the firms were in the programs at the time of contract award, but in FY 2013 were no longer in the 8(a) or HUBZone programs.”
“These numbers reflect 31 percent of 8(a) set-asides and 32 percent of the HUBZone contract actions we reviewed,” the report said.
The minority contracting program is sometimes referred to as “training wheels,” because it is supposed to give small companies a boost and then wean them off the government as they become firms with a flourishing roster of private customers.
The IG report notes that they receive “specialized training, individual counseling assistance,” and “high-level executive development support.”
But it’s the final item — “eligibility to obtain set aside and sole-source government contracting opportunities” — that often seems more important, with many firms remaining reliant on government nearly exclusively.
The program lasts nine years, after which they are no longer considered disadvantaged — and, depending on how many contracts they have received, are sometimes large.
But the report shows that despite nearly a decade of training, firms are still living off government contracts, and government is still using the money they send them to claim credit for the small-business program.
For example: “A firm was awarded a contract in June 2009 and withdrew from the 8(a) Program in October 2010. The firm was awarded a task or delivery order on June 14, 2013, for $56.5 million. The procuring agency is allowed to receive credit toward its 8(a) contracting goal, even though it is for an order awarded to a firm three years after their exit from the 8(a) Program,” the report said.
