SBA’s legal woes not over with appeal

The American Small Business League wants the last word on whether a Fortune 500 company can be considered a “small business.”

The ASBL recently filed an appeal with the U.S. Court of Appeals for the Ninth Circuit, against a judge’s decision to dismiss the league’s case against the Small Business Administration.

“Of course, I was very disappointed the judge dismissed the case, but the way he dismissed it I was happy with,” said Lloyd Chapman, ASBL president. “Our case was really about trying to get an injunction to two SBA policies that we feel are illegal: the grandfathering policy that allowed for them to report awards to Fortune 500 firms as small business contracts and the exclusionary rule that they use to exclude two-thirds of the federal acquisition budget from their calculations.” 

“When you look at the judge’s ruling, it really doesn’t even look like the same case,” Chapman continued. “It looks like a ruling about someone who’s challenging in the way information is reported.”

The dismissal states that Congress established the law requiring SBA to give lawmakers information on federal small business contracting.

“If the Small Business Administration is giving Congress bad information, then Congress can do something about it, either in an oversight or legislative capacity,” the dismissal states. “Having requested the report, Congress, not the judiciary, is in the best position to decide whether it’s gotten what it wants.”

Every year agencies must report to the SBA on whether or not they met small business contracting goals, and if an agency doesn’t meet the goal, it must provide SBA with the reasons why the goal wasn’t reached and a plan on how to address it.

The SBA shared earlier this year that in fiscal 2015, the government reached — and in fact surpassed — its 23 percent overall small business procurement goal by spending 25.75 percent, or $90.7 billion on small business contracts.

The ASBL filed its original lawsuit  May 3 against the SBA, claiming the agency has adopted the practice of awarding small business contracts to Fortune 500 companies and met its goaling reports through “creative accounting.”

“SBA characterizes contracts awarded to Fortune 500 corporations as ‘small business contracts’ for the purpose of claiming federal agencies have attained their small business contracting goals,” the ASBL stated in its lawsuit.

The ASBL also claims in its suit that the SBA can only say it meets the 23 percent goal by “creating, through agency fiat, a class of government contracts which are, solely in the view of the SBA, subject to exclusion from being considered as part of ‘the total value of all prime contract awards’ as stated in the Small Business Act.”

The SBA in its motion to dismiss, said it’s not SBA’s practice of “misclassifying contracts,” but rather “the Department of Defense, [General Services Administration], and NASA — through the FAR, and under guidance from the Office of Management and Budget — make each agency individually responsible for submitting and certifying the veracity of its contracting data to Federal Procurement Data System.”

John Shoraka, SBA’s associate administrator of Government Contracting and Business Development, told Federal News Radio in a May interview that SBA’s exclusion practice was a carryover from the previous administration, but is being updated.

The judge who dismissed the case said under the Administrative Procedure Act, federal courts are not allowed to review everything an agency does, only “final agency action.”

The SBA goaling report doesn’t meet the test for final agency action, according to court documents.

“It neither alters the legal regime to which individual agencies or small businesses are subject, nor results in direct and appreciable legal consequences,” the dismissal states. “The report does not carry penalties for an agency’s failure to meet the small business participation goal. It does not bind agencies to comply with any proposed remediation plan. Any appreciable consequence of the report — such as an agency’s decision to start awarding more contracts to small businesses — would be indirect, because the agencies make the ultimate decision whether and how to award contracts.”

Despite the legal setback, Chapman remains optimistic.

“Well, I think Congress passed the Small Business Act and it’s the Justice Department’s job to enforce that law, and the judge cannot think that it’s up to Congress to do this,” Chapman said. “I think the ninth circuit will agree with me, that Fortune 500 firms aren’t small businesses, and the word all means all. The Small Business Act says all small businesses shall receive a minimum 23 percent of all contracts. Yet the SBA has admitted that they use their exclusionary rule to exclude contracts for a variety of reasons.”

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