If you run a small business and plan to compete in the Federal marketplace to secure contracts, you should pay close attention to which companies are really winning contracts – especially the contracts that are meant to go to small businesses. Unfortunately, a large portion of the contracts set aside for small businesses are actually going to large corporations.
How are they able to get away with this? Well, to start, business owners are not currently required to list their identity when they establish a business. This has encouraged some to create anonymous shell companies that enable this behavior. Congress, however, is considering bipartisan legislation called the Corporate Transparency Act, which would require businesses to list the real identity of their owners.
By law, the federal government is obligated to award 23% of its contracts to small businesses. That said, a series of federal investigations and private studies have found that the government is reporting billions of dollars in contracts to large companies as federal small business awards. It is mostly because the large companies are hiding behind these “shell companies” that are disguised as small businesses.
The Small Business Administration Act was put into place to level the playing field for hardworking small business owners – yet many times large corporations open shell companies specifically for the purpose of unscrupulously winning contracts that they know are not meant for them. This is a perfect example of why legislation should be passed that promotes corporate transparency. This legislation would protect small businesses that compete for millions of dollars in government contracts or set-asides intended for small businesses.
Every year, the American Small Business League (ASBL) conducts a report of the Top 100 companies receiving federal small business contracts during a fiscal year, by listing the 100 companies that received the highest total dollar amount of federal small business contracts in that fiscal year. The ASBL estimate that the federal government diverts more than $100 billion a year in federal small business contracts to large and international corporations and then counts those contract awards to large businesses in annual federal small business procurement reports.
It is against the law to misrepresent the size of a firm in order to illegally receive federal contracts and subcontracts. In fact, it is a felony with penalties of up to 10 years in prison, a fine up to $500,000, cancellation of all contracts and debarment from selling to the government.
