Bloomberg News

Lawmakers Demand Crackdown on U.S. Program Enriching Wealthy

February 22, 2012

U.S. Senator Olympia Snowe at the U.S. Captiol in Washington, on Nov. 29, 2011. Photographer: Chip Somodevilla/Getty Images

U.S. Senator Olympia Snowe at the U.S. Captiol in Washington, on Nov. 29, 2011. Photographer: Chip Somodevilla/Getty Images

Two top lawmakers on small business matters renewed calls for tougher enforcement of the rules in a program that steers government contracts to the socially and economically disadvantaged.

Some wealthy entrepreneurs have received hundreds of millions of dollars in federal contracts reserved for the disadvantaged by repeatedly qualifying for the one-time program, Bloomberg reported yesterday, based on a review of Small Business Administration and procurement data. The preference system, under Section 8(a) of the Small Business Act, accounted for $16.7 billion in government awards last year, more than the budget of the Commerce Department.

“It is unfortunate that news headlines and media reports continue to underscore the necessity for more vigorous oversight within the Small Business Administration’s 8(a) program,” said Senator Olympia Snowe of Maine, the ranking Republican on the Small Business and Entrepreneurship Committee. She sponsored legislation passed by the Senate last year that would tighten oversight of SBA contracting.

In the House of Representatives, which hasn’t taken up the measure, Missouri Republican Sam Graves, chairman of the Small Business Committee, said the Justice Department “is reluctant to use its resources to pursue small business fraud cases if the cost of prosecution will outweigh the costs of recovery.”

The Graves panel is considering a bill that would address fraud in government procurement, said D.J. Jordan, a spokesman for the committee, in an e-mail. The proposal by Representative Mick Mulvaney, a South Carolina Republican, “will make it easier to crack down on deceptive large businesses hiding behind small businesses,” Jordan said.

‘Worst Examples’

Snowe’s bill, known as the Small Business Contracting Fraud Prevention Act of 2011, would force the SBA to improve certification, surveillance and enforcement, she said. The measure passed the Senate with unanimous consent and has 13 co- sponsors.

Since 1990, the SBA has certified multiple companies at a single address more than 100 times, based on data compiled by Bloomberg. Twelve repeat participants have received $412 million in preferential contracts and more than $1 billion in total government awards, Bloomberg found. Under the rules, a qualifying small business should participate only once in the preference program, which should last just nine years.

“Tomorrow, the inspector general should look into not just terminating the contracts of the worst examples, but checking out the more than 100 times the SBA certified multiple companies at a single address,” said Charles Tiefer, who served on the U.S. Commission on Wartime Contracting.

Growing Rich

Officials should consider “a potential referral to the Justice Department for civil clawback proceedings,” said Tiefer, who is now a professor at the University of Baltimore Law School.

A Florida family grew rich on $256 million in federal contracts since 1993, in part through a web of closely held companies that allowed members to remain 18 years in the nine- year program for the disadvantaged, Bloomberg reported. Brothers Akhil Agrawal, 44, and Sukrit Agrawal, 46, participated in the SBA program from 1994 to 2003 and continue to win preferential contracts today through a joint venture with their father’s firm, APS Technologies Inc. The family denied any wrongdoing in a written statement.

“The story of how the Agrawals got rich by manipulating the system is a textbook example of why vigorous government oversight is needed before taxpayer dollars are handed over,” said Nick Schwellenbach, director of investigations at the non- profit Project on Government Oversight in Washington.

More Oversight Urged

The SBA defines the socially disadvantaged as “those who have been subjected to racial or ethnic prejudice or cultural bias,” such as women, blacks, Hispanics, Native Americans and Asian-Americans. Eligibility in the Section 8(a) program is limited to U.S. citizens whose net worth can’t initially exceed $250,000 and shouldn’t rise above $750,000 while in the program.

“If, in fact, the process can be circumvented to the extent that it appears that it has been, that would suggest to me that there needs to be a lot more oversight and perhaps rules need to be changed in order to ensure compliance,” said Rob Burton, a top U.S. procurement official under President George W. Bush. He is now a partner in the Washington office of the Venable LLP law firm.

Admission to the program for the disadvantaged gives entrepreneurs a passport to obtain federal contracts that typically aren’t subject to competition. The U.S. targets 23 percent of its $530 billion in buying each year for small companies through an array of assistance, of which the 8(a) designation is only one.

Business owners and members of their immediate families may participate only once, though the SBA spells out exceptions. These include approved mentoring relationships and joint ventures between past and current participants, or if participants are in different lines of business.

To contact the reporters on this story: Elliot Blair Smith in Washington at esmith29@bloomberg.net; Danielle Ivory in Washington at divory@bloomberg.net. Gopal Ratnam in Washington at gratnam1@bloomberg.net;

To contact the editors responsible for this story: Robert Blau at rblau1@bloomberg.net; Mark Silva at msilva34@bloomberg.net; Stephanie Stoughton at +1-202-654-7375 or sstoughton@bloomberg.net


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