Last month the Small Business Administration (SBA) took public comment on a new policy titled “safe harbor from fraud penalties.” Under current federal law, any large business that misrepresents its status as a small business to illegally receive federal small business contracts can face up to ten years in prison, a $500,000 fine or both.

Under the new SBA “safe harbor from fraud penalties” policy, any large business that is caught committing felony federal contracting fraud to illegally hijack millions in federal small business contracts, can avoid all penalties by simply claiming they “acted in good faith.”

Do you think that might encourage more fraud in federal small business contracting programs? Every year for a decade the SBA Office of Inspector General has named the diversion of federal small business contracts to large businesses as the number one problem at the SBA. Creating a “safe harbor from fraud penalties” seems like the last thing they need at the SBA.

hearing a few days ago in the House Small Business Committee revealed numerous Fortune 500 firms were receiving federal small business contracts. The latest data from the Federal Procurement Data System indicates of the top 100 recipients of federal small business contracts, over 75% are currently large businesses.

An investigation by the GAO essentially accused the SBA of encouraging fraud. GAO Report 10-108 stated, “By filing to hold firms accountable, SBA and contracting agencies have sent a message to the contracting community that there are no consequences or penalties for committing fraud…”

Based on this kind of information, does it seem to anyone that what America really needs right now is a new federal policy that creates a “safe harbor from fraud penalties” for firms that are committing felony federal contracting fraud?

A few weeks ago the SBA adopted policies that changed the federal definition of a small business to include thousands of large businesses. The Washington Post reported on it. Now legitimate small businesses across America will be forced to compete with some of the largest firms in their industry for federal contracts and subcontracts. This will devastate federal contracting opportunities for millions of legitimate small businesses across the country.

Now the SBA has proposed another new policy where firms that supply computer products to the federal government that have annual sales of over $27.5 million will now be considered a large business. If that policy is adopted, a computer supplier that has annual sales of over $27.5 million will be forced to compete directly with Dell, IBM and Hewlett-Packard and hundreds of other Fortune 500 firms and large businesses for even the smallest government order for computer products.

Are we starting to see a pattern here? Is it just me or does it look like the SBA is adopting a series of pro-big business and anti-small business polices?

The fact is the SBA has knowingly and willfully diverted hundreds of billions of dollars in federal small business contracts to some of the largest corporate giants in the world for over fifteen years. The SBA Office of Inspector General began uncovering rampant fraud at the SBA as early as 1995.

As the SBA has continued to adopt a long series of anti-small business policies they have also continued to claim that the diversion of billions of dollars a month in federal small business contracts to corporate giants is the result of “miscoding, anomalies, simple human error and computer glitches.”

They have never been able to explain why these supposed random errors do not have a random pattern of distribution at all. Quite to the contrary, the SBA’s random errors always seem to divert federal small business contracts to Fortune 500 firms and thousands of large businesses around the globe.

There have been over a dozen federal investigations into the diversion of federal small business contracts to big businesses and yet the SBA has never adopted a single policy to halt the rampant fraud and abuse. Again quite to the contrary we see a documentable pattern of polices from the SBA to allow larger and larger firms to hijack federal small business contracts and now even a new policy to protect fraudulent firms with a “safe harbor from fraud penalties.”

NBCCBSABCCNNMSNBCCNBCRTTV and Fox News have all reported on the diversion of federal small business contracts to corporate giants and yet the SBA continues to adopt even more anti-small business and pro-big business and pro-fraud policies.

In 2003 the GAO investigated the SBA and uncovered over 5,000 large businesses were receiving federal small business contracts. I say it’s time for another GAO investigation into the SBA and this time I think the FBI needs to investigate the specific individuals that are responsible for the rampant fraud, corruption and abuses at the SBA that has gone unchecked for years.

Lets try putting some people in jail over at the SBA and see if that doesn’t help stop the “miscoding, anomalies and simple human error” that has cheated legitimate American small businesses out of hundreds of billions of dollars in federal contracts for over a decade. I bet the FBI can find out who’s getting rich over at the SBA by helping big businesses steal billions of dollars in federal small business contracts.

My advice to the FBI would be to start with the SBA Press Office.


Lloyd Chapman

Lloyd Chapman