Report: Small Businesses Losing Out

Art Munn poses for a photo in front of an office building Tuesday, July 25, 2006, in Lexington Park, Md. Munn, a California, Md.-based contractor, said he he has lost several government contracts to larger firms. Munn said earlier this year he had to lodge a formal protest with the SBA to save a Marine Corps contract he'd been awarded for a radar dome installation in Bahrain. (AP Photo/Matt Houston)
AP Photo
Art Munn saw his business nearly fall victim to what congressional investigators say is a growing problem: Small firms on the verge of winning federal contracts lose out to well-connected corporate giants that also claim to be small companies.

Munn, a Maryland-based contractor, competed for a Marine Corps contract last year to build radar dome covers in Bahrain. However, a large company threatened to beat his small firm out for the award. Munn protested, and after several months, the other company was ruled ineligible for the contract.

"It gets ugly," he said. "This time, everything worked like it was supposed to work, and I got the contract. But it gets frustrating. I waste a lot of time and money."

It doesn't happen that way every time, Munn said. And a report released Wednesday by Democratic congressional investigators shows it's a growing trend. At least $12 billion in contracts the government claimed it gave to small companies last year wound up instead in the coffers of large companies like Microsoft and Rolls-Royce, investigators said.

When small business contracts with large companies are excluded, the government missed for a sixth straight year a requirement that 23 percent of its $314 billion in annual contracts go to small businesses, the report said.

There were two basic problems, the investigators said: Federal agencies miscoded thousands of contracts to big companies as small business awards. Also, many other companies that started small grew large or were purchased by corporate giants but continued to get small business contracts.

The big losers include tiny firms like Cindra Stolk's company Federal Edge in California, which has just eight employees, CBS News correspondent Sharyl Attkisson reports.

"Small business is actually a little bit too big of a name for us. I tend to call us micro-business," quips Stolk, the company's CEO.

Incredibly, her firm once lost out on a contract meant for a small business to a billion-dollar corporation with 700 employees. Stolk eventually won an expensive appeal – something most little firms can't afford to pursue, Attkisson reports.