GAO-03-776R Small Business Certification 

United States General Accounting Office 

Washington, DC 20548 

May 7, 2003 

The Honorable Olympia J. Snowe 

Chair, Committee on Small Business 

and Entrepreneurship 

United States Senate 

Subject: Reporting of Small Business Contract Awards Does Not Reflect Current 

Business Size 

Dear Madam Chair: 

We have prepared this report in response to your concerns about whether large 

companies are receiving federal contracts intended for small businesses. As agreed 

with your staff, we reviewed awards to five large companies to determine 

• how contracts awarded to the companies were reported in Federal Procurement 

Data System (FPDS), 1

 

• why federal contract officials reported the contracts as small business awards, 

and 

• what actions are being taken to address any identified problems. 

This report transmits information provided to your staff in earlier briefings and in our 

testimony given today before the Small Business Committee of the House of 

Representatives, which we have enclosed. We conducted our review between 

November 2002 and May 2003 in accordance with generally accepted auditing 

standards. A description of our scope and methodology is included in the enclosure. 

The five large companies that we reviewed received contracts totaling $1.1 billion in 

fiscal year 2001, including $460 million reported as small business awards. To 

understand why awards to these large companies were listed in FPDS as small 

business awards, we focused our review on 131 individual contract actions awarded 

to these companies by four federal buying activities. 

 

1

 FPDS is the government’s central repository of statistical information on federal contracting. The 

system contains detailed information on contract actions over $25,000 and summary data on 

procurements of less than $25,000. 
Page 2 GAO-03-776R Small Business Certification 

The predominant reason why these contract actions were reported as small business 

awards is because federal regulations generally permit a company to be considered 

as a small business over the life of the contract—even if they have grown into a large 

business, merged with another company, or been acquired by a large business. In 

today’s federal contracting environment, contracts can extend up to 20 years. 

Additionally, agencies’ reliance on various databases containing inaccurate 

information on current business size has led to misreporting of small business 

achievements. 

The General Services Administration, the Office of Federal Procurement Policy, and 

the Small Business Administration have each taken or proposed a number of actions 

aimed at requiring small businesses to re-certify and not retain their small business 

status for the life of the contract. While these proposed actions do not directly 

address the database problems we identified at the four federal buying activities, 

there are a number of initiatives under way designed to improve federal contract 

databases. 

We have not made recommendations; however, we have noted the need for accurate 

and consistent data on companies’ business size in order to reliably report small 

business contract awards. We believe a coordinated effort between agencies is 

necessary to ensure that accurate and reliable small business data are reported. 

If you have any further questions concerning this report, please contact me on 

(617) 788-0500. Individuals making key contributions to this report include Robert 

Ackley, Penny Berrier, Chris Galvin, Julia Kennon, Judy Lasley, John Needham, Russ 

Reiter, Sylvia Schatz, and Karen Sloan. 

Sincerely yours, 

David E. Cooper 

Director 

Acquisition and Sourcing Management 

Enclosure 

(120192) 
 

Testimony 

Before the Committee on Small Business, 

House of Representatives 

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 2:00 p.m. EDT 

Wednesday, May 7, 2003 CONTRACT 

MANAGEMENT 

Reporting of Small 

Business Contract Awards 

Does Not Reflect Current 

Business Size 

Statement of David E. Cooper 

Director 

Acquisition and Sourcing Management 

GAO-03-704T 
According to FPDS, five large companies that we reviewed received 

contracts totaling $1.1 billion in fiscal year 2001, including $460 million as 

small business awards. To understand why awards to these large companies 

were listed in FPDS as small business awards, we focused our review on 131 

individual contract actions awarded to these companies by four federal 

buying activities. 

The predominant cause for the misreporting of small business achievements 

is that federal regulations generally permit a company to be considered as a 

small business over the life of the contract—even if they have grown into a 

large business, merged with another company, or been acquired by a large 

business. In today’s federal contracting environment, contracts can extend 

up to 20 years. In addition, agencies relied on various databases containing 

inaccurate information on current business size. 

The General Services Administration, the Office of Federal Procurement 

Policy, and the Small Business Administration have taken or proposed a 

number of actions aimed at requiring small businesses to re-certify and not 

retain their small business status for the life of the contract. While these 

proposals do not directly address the database problems we identified at the 

four federal buying activities, there are a number of initiatives under way 

designed to improve federal contract databases. 

Large Companies’ Contracts Reported as Small Business Awards 

According to information in the 

Federal Procurement Data System 

(FPDS), in fiscal year 2001, small 

businesses received approximately 

23 percent of federal contract 

dollars awarded. However, 

concerns have been raised that 

large companies are receiving 

federal contracts intended for small 

businesses. 

We have not made 

recommendations in this 

testimony. However, we note the 

need for accurate and consistent 

data on companies’ business size 

in order to reliably report small 

business contract awards. 

Accordingly, we believe a 

coordinated effort between 

agencies is necessary to ensure 

that accurate and reliable small 

business data is reported. 

www.gao.gov/cgi-bin/getrpt?GAO-03-704T.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact David Cooper 

at (617) 788-0555 or cooperd@gao.gov. 

Highlights of GAO-03-704T, testimony 

before the Committee on Small Business, 

House of Representatives 

May 7, 2003 

CONTRACT MANAGEMENT 

Reporting of Small Business 

Contract Awards Does Not Reflect 

Current Business Size 
Page 1 GAO-03-704T 

Mr. Chairman and Members of the Committee: 

Thank you for inviting me to participate in today’s hearing on whether 

large companies1

 are receiving federal contracts intended for small 

businesses. According to the Federal Procurement Data System (FPDS),2

small businesses received approximately $50 billion, or almost 23 percent 

of federal prime contract dollars awarded in fiscal year 2001. In response 

to your request, we reviewed awards to five large companies to determine 

• how contracts awarded to the companies were reported in FPDS, 

• why federal contract officials reported the contracts as small business 

awards, and 

• what actions are being taken to address any identified problems. 

A detailed discussion of our scope and methodology can be found in 

appendix I. 

According to FPDS, the five large companies received contracts totaling 

over $1.1 billion in fiscal year 2001, including $460 million reported as 

small business awards. To understand why awards to these large 

companies were listed in FPDS as small business awards, we focused our 

review on 131 individual contract actions awarded to these companies by 

four federal buying activities. 

The primary reason these contract actions were reported as small business 

awards is because federal regulations generally permit companies to be 

considered small over the life of a contract—even if the company grows 

into a large business, merges with another company, or is acquired by a 

large business. We also found that contracting officials reported some 

contract actions as small business awards because they relied on 

databases containing conflicting and incorrect information about the 

current size of some of the companies we reviewed. While these results 

cannot be projected to all contract actions reported, they raise serious 

questions about relying on FPDS data to measure federal agencies’ efforts 

to meet the government’s 23 percent small business goal. 

 1

 The Small Business Administration (SBA) uses the terms small and other than small to 

define those concerns that meet their size standards and those that do not. For purposes of 

this statement, we use the term large to identify those concerns that are other than small. 

2

 FPDS is the government’s central repository of statistical information on federal 

contracting. The system contains detailed information on contract actions over $25,000 and 

summary data on procurements of less than $25,000. 
Page 2 GAO-03-704T 

The Office of Federal Procurement Policy (OFPP), the General Services 

Administration (GSA), and the Small Business Administration (SBA) have 

all recognized the need to address issues regarding changes in the size of 

businesses, particularly in the context of today’s long-term federal 

contracts. Each has proposed actions designed to protect small business 

interests and ensure small business achievements are reported accurately. 

The Small Business Act defines a “small business concern” as one that is 

independently owned and operated and that is not dominant in its field of 

operation. The act allows SBA to further define a small business. In its 

regulations, SBA has established size standards for different types of 

economic activities, or industries, generally under North American 

Industry Classification System (NAICS) codes. Size standards define the 

maximum size that a business, including all of its affiliates, can be to be 

eligible as a small business for all SBA and federal programs that require 

small business status. Most size standards are based on either number of 

employees or average gross revenues. 

The Federal Acquisition Streamlining Act of 1994 (FASA) codified the 

authority of agencies to enter into task or delivery order contracts with 

multiple firms for the same or similar products, known as multiple award 

contracts (MAC). Also, the Clinger-Cohen Act of 1996 provided for the use 

of multiagency contracts and what have become known as 

governmentwide acquisition contracts (GWAC). Agencies have 

increasingly used these types of contracts, which can extend up to 20 

years, to quickly meet their acquisition needs rather than issuing new 

contracts. For these types of contracts, the size of a business is 

determined as of the date the business submits a self-certification in its 

initial offer. If a business is small as of that date, agencies may place 

orders pursuant to the original contract and consider these orders as 

awards to a “small business” for the length of the contract, even if the 

company outgrows the original contract’s size standard. 

Background 
Page 3 GAO-03-704T 

Our work at the four federal buying activities showed that contracting 

officials reported 131 contract actions made to the five large companies in 

fiscal year 2001 as small business awards. (See fig. 1.) 

Figure 1: Large Companies’ Contracts Reported as Small Business Awards

SBA conducted an analysis of FPDS data concerning four companies in 

fiscal years 2000 and 2001 under GSA’s Multiple Award Schedules Program 

and concluded that the small business award information in FPDS is 

misleading. According to SBA, the four companies were initially certified 

as small businesses and awards to these companies continued to be 

reported as small business contracts even though they became large 

businesses. In fiscal year 2000, the four companies received 1,313 contract 

actions valued at over $190 million that were reported as small business 

awards. In fiscal year 2001, these companies received 1,271 contract 

actions amounting to over $200 million reported as going to small 

businesses. 

Reporting of Small 

Business Contract 

Awards in FPDS Does 

Not Reflect Current 

Business Size 
Page 4 GAO-03-704T 

The primary reason why contracts awarded to large companies are 

reported in FPDS as small business awards is that federal regulations 

permit companies to be considered small over the life of a contract—even 

if they have grown into a large business, merged with another company, or 

been acquired by a large business. Given that the term of a contract can 

extend for up to 20 years in the current federal acquisition environment, 

there is often ample time for a company’s size to change. We found this to 

be the case in several of the companies we reviewed. For example, one 

company was initially certified as a small business but subsequently grew 

in size and no longer qualified as a “small business” for federal contracting 

purposes. However, the company continued to receive awards that were 

reported in FPDS as small business awards in accordance with current 

regulations. In fiscal year 2001, this company received small business 

contract awards totaling nearly $330 million. (See fig. 2.) 

Reasons Why 

Information In FPDS 

Does Not Reflect 

Current Business Size 
Page 5 GAO-03-704T 

Figure 2: An Example of How FPDS Small Business Information Is Affected by 

Federal Regulations 
Page 6 GAO-03-704T 

We also found several cases where contracting officials relied on 

conflicting and inaccurate information in federal databases to report 

business size information. Specifically, at the four federal buying activities 

we visited, contracting officials were using databases that contained 

outdated and inaccurate information about the size of the companies we 

reviewed. For example, a company certified it was a large business under 

a GWAC, but contracting officials placing an order off of this GWAC relied 

on outdated information contained in databases and reported these orders 

as going to a small business. (See fig. 3.) 
Page 7 GAO-03-704T 

Figure 3: An Example of How FPDS Small Business Information Is Affected 

by Contracting Officials Using Databases That Contain Outdated or Inaccurate 

Information 
Page 8 GAO-03-704T 

GSA, OFPP, and SBA have taken or proposed a number of actions to 

improve the accuracy of reporting small business size. All of the proposed 

actions are aimed at requiring small businesses to re-certify and not retain 

their small business status for the life of the contract. For example: 

• In October 2002, GSA changed its policy to require companies receiving 

Federal Supply Service (FSS) Multiple Award Schedule Program 

contracts and all other multiple award-type contracts to re-certify their 

business size when the government exercises options to extend such 

contracts—which for the FSS contracts generally occurs at 5-year 

intervals. 

• In February 2003, OFPP required agencies with GWACs to have their 

contractors annually re-certify their status as small businesses. 

• In April 2003, SBA proposed several changes to its regulations 

governing small business size. Specifically, SBA proposed that 

companies receiving Multiple Award Schedule Program contracts and 

other multiple award contracts must re-certify their small business 

status annually. SBA’s proposed changes also included procedures for 

publishing a list of re-certifications and allowing interested parties to 

challenge the re-certifications. SBA also reserved the right to review or 

request a formal size determination of any re-certification. Public 

comments on SBA’s proposed regulatory changes are due by June 24, 

2003. 

While these proposals address the primary cause of large companies being 

reported as receiving small business awards, they do not directly address 

the database problems we identified at the four federal buying activities. It 

is imperative that federal contracting officials have accurate and 

consistent data on companies’ business size in order to reliably report 

small business contract awards. There are a number of initiatives 

underway designed to improve federal contract databases. Accordingly, 

we believe a coordinated effort between agencies is necessary to ensure 

that accurate and reliable small business data is reported. 

A purpose of the Small Business Act is to ensure that a fair proportion of 

all federal contracts be placed with small business concerns. Implicit in 

this is the notion that the work under the contract will actually be 

performed by a small business. 

Proposals to Address 

Reporting of Small 

Business Size 

Conclusion 
Page 9 GAO-03-704T 

Small business contracting information reported in FPDS is misleading 

because regulations permit companies to retain their small business status 

over the life of contracts—which in today’s federal contracting 

environment could last as many as 20 years. Federal databases containing 

outdated and incorrect information add to the problem. 

Considering the duration of current federal contracts, it is reasonable to 

require contractors to update their small business status more frequently 

to reflect their actual size. We believe the proposals by GSA, OFPP, and 

SBA are preliminary steps to achieve this purpose. 

Mr. Chairman, this completes my prepared statement. I would be happy to 

respond to any questions you or other Members of the Committee may 

have at this time. 

For further information regarding this testimony, please contact David E. 

Cooper at (617) 788-0500. Individuals making key contributions to this 

testimony include Robert Ackley, Penny Berrier, Chris Galvin, Julia 

Kennon, Judy Lasley, John Needham, Russ Reiter, Sylvia Schatz, and 

Karen Sloan. 

Contact and 

Acknowledgments 
Page 10 GAO-03-704T 

Using FPDS, we identified 49,366 companies receiving contract awards 

reported as going to small businesses in fiscal year 2001. Of these 

companies, 5,341 also received contract awards as a large business. These 

companies were reported receiving over $13.8 billion as a small business 

and almost $60.6 billion as a large business. To conduct our work, we 

reviewed a judgmental sample of contract actions awarded by four federal 

buying activities to five large companies. 

To ensure that we had a good selection of contract actions and federal 

buying activities to review, we identified companies that received at least 

50 contract actions that were recorded as going to a small business and at 

least 50 contract actions recorded as going to a large business. Nineteen 

companies met these parameters. We selected five of these companies 

based on a number of factors including the type, value, and number of 

contract actions, and location of the buying activity. The five large 

companies in our sample received both large and small business contracts 

totaling about $645 million and $460 million, respectively, in fiscal year 

2001. We then selected contract actions awarded to determine how the 

companies had, in these cases, been classified as a small business. We 

reviewed 131 contract actions totaling $17.4 million. Our work was 

performed at the Office of Personnel Management, GSA’s Federal Systems 

and Integration Management Center, the Department of Air Force’s 

Hanscom Air Force Base, and the Department of Army’s Defense 

Contracting Command-Washington. 

In addition, we reviewed the contracts awarded by GSA’s Federal Supply 

Service, National Institutes of Health’s Information Technology 

Acquisition and Assessment Center, National Aeronautic Space 

Administration’s Scientific and Engineering Workstation Procurement, and 

the Department of Army’s Small Army Computer Program. 

Finally, we held discussions with officials at GSA, OFPP, and SBA. To 

obtain the small business perspective, we spoke with small business 

association representatives. We conducted our review between November 

2002 and May 2003 in accordance with generally accepted auditing 

standards. 

Appendix I: Scope and Methodology 

(120246) 
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