Enforcement of Procurement Fraud & Abuse Laws

Priority Issue Briefs
Enforcement of Procurement Fraud & Abuse Laws

Small-business goals are often met by government agencies, while large businesses are receiving more contracts. The federal government is not enforcing laws against fraud and abuse of the procurement process. Documented in a 2003 report: DOE Inspector General's office found DOE prime contracts were showing awards to large businesses as awards for small businesses in an effort to falsify reports.

Misstatement of number of employees: Companies are misrepresenting number of employees they have in order to unfairly compete for small business contracts. These companies intentionally misrepresent themselves as qualifying for small business set-aside contracts on Pro-Net and CCR, the databases used by federal agencies.

Misuse of NAICS codes: Companies claim that their primary business is something other than what it is so they can use an NAICS code with a much higher small business size standard. For example, a computer reseller with more than 500 employees would not qualify for small business contracts, but by claiming to be a manufacturer it can qualify with up to 1,000 employees.

Large businesses passing off a subsidiary or division as an independent small business: Under federal law the employees of a parent company must be considered in determining proper size standards. The division or subsidiary of a large business would not constitute a legitimate small business. Yet subsidiaries consistently are awarded small business contracts. In addition, companies that were at one time legitimate small businesses but have grown into large business continue to represent themselves as legitimate small businesses.

Small or disadvantaged business status: Companies that have never been certified as small disadvantaged businesses or failed to qualify are representing themselves as small disadvantaged businesses in order to receive federal small business contracts and subcontracts.

Anti-Small Business Policies
Rewriting the law: Even though Congress passed legislation mandating that all federal acquisitions between $25,000 and $100,000 be exclusively set aside for small businesses, the SBA and the OMB have adopted a policy that has effectively repealed this legislation. The SBA and the OMB exempted any federal acquisition from this mandatory set-aside that is currently on the GSA Schedule. Since 99 percent of what the government buys is on this schedule, what the SBA and OMB have done is overturn a law designed to help small businesses.

Allowing exceptions: The SBA and the OMB have adopted a policy that allows a small business acquired by a large business to continue to claim its small business status for up to 20 years. This policy has forced thousands of legitimate small businesses out of business when they are forced to compete with large businesses around the world for small business set-asides.

Discouraging protests: A small business filing a protest against a set-aside contract that was awarded to a large company frequently is informed that the contract was not really a set-aside and there is no grounds for a protest. For the last few years the SBA has dismissed hundreds of legitimate protests from small businesses against by saying the contract was not a set-aside acquisition.

Avoiding prosecution: Another policy that hurts legitimate small businesses prevents a large corporation from being prosecuted for small business contract fraud unless it can be shown that the firm intended to commit fraud.

Delaying notification: Large companies that win small business contracts are protected from legitimate protest challenges by some federal agencies that withhold the name of the winning supplier until the time frame for filing a protest has expired. This technique is preventing legitimate small businesses from filing protests against fraudulent firms.

The National Association of Government Contractors is firmly against allowing fraud and abuse in the procurement process going unchallenged. The 23 percent small-business contracting goal for agancies is vital to the growth of America's small businesses and must be enforced.

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