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The Honolulu Advertiser
Posted on: Wednesday, November 6, 2002

Feds probe distribution of SBA contracts

By Karen Robinson-Jacobs
Los Angeles Times

Responding to a request from Sen. Barbara Boxer, D-Calif., the Justice Department is examining whether large companies are improperly obtaining government contracts that are supposed to be set aside for small businesses.

After receiving a letter in late September from Boxer, the U.S. attorney's office in Washington assigned a lawyer to determine whether a formal investigation is warranted.

"In some matters, we decide right off the bat that this is not something that falls into our purview," said Channing Phillips, a spokesman for the U.S. attorney's office. "The fact that it's been assigned should suggest that it's more than just a cursory review."

Boxer sent her letter after hearing concerns raised by a small-business advocate who heads a computer resellers group.

"With small businesses in California facing a difficult business environment, it is important that government contracts set aside for small businesses be made available to small businesses," Boxer said in the letter. She asked the office to determine whether "certain companies have falsely claimed to qualify as small businesses and won government contracts in violation of law."

Under federal law, a firm can face "severe criminal penalties for knowingly misrepresenting small-business size status in connection with procurement programs," an SBA attorney said.

Small businesses have long complained that loopholes in federal law, sloppy government recordkeeping and, in some cases, outright fraud result in large corporations getting millions of dollars in federal contracts that Congress meant to go to small businesses.

Updating the Small Business Act, Congress in 1997 decided that federal agencies should strive to spend at least 23 percent of all federal procurement dollars with small businesses. But large firms often find ways to qualify for those set-asides.

By almost any yardstick, Buhrmann Co. would count as a large company. One of the world's leading suppliers of office products, the Amsterdam, Netherlands-based corporation employs 26,000 people in 28 countries and had 2001 revenue of about $10 billion.

Yet in the eyes of the U.S. government, a company subsidiary called ASAP Software can declare itself a small business and win federal contracts accordingly.

"Our employee count is what qualifies us" as a small business, said Harry Zoberman, senior vice president of operations and marketing ASAP Software. The Buffalo Grove, Ill., unit of Buhrmann has 300 employees in the United States and an additional 200 workers around the world.

Although the rules can vary, many government contracts consider a company with 500 or fewer employees to be small.

Lloyd Chapman, who heads the Micro Computer Industry Suppliers Association, the trade group that alerted Boxer to the issue, says the situation is absurd.

"I can't think of anything that's more unfair than forcing legitimate small business to compete with some of the largest companies in the world," said Chapman, who added that his employer, a Novato, Calif.-based computer reseller, recently lost a $50,000 contract to GovConnection. "You're cheating the legitimate small businesses out of the opportunity that Congress meant for them to have."