Procurement codes need small-business bulldogs

State Senator Jake Knotts of Lexington County, South Carolina, is angry. 

Recently a school district in his county gave the contract to build a new school to a big Chinese general contractor that had the low bid.  Senator Knotts shares the outrage of many of his constituents.  While a local architectural firm is being hired to draw the plans and supervise construction, only one other in-county business is being brought on board the project.  The rest of the construction services appear to be going to U.S. businesses outside the county and state.   

But the main concern for the Senator is the Chinese general contractor, and rightfully so.  We can expect to see the steel, concrete, furniture and other goods needed for the contract being imported from Chinese manufacturers.  Millions of local tax dollars will flow back to China draining much needed cash from our local, state and national economies. 

Senator Knotts, who has a reputation as a legislative bulldog, wants to change the procurement code to give locally-owned businesses an advantage in the bidding process for government construction contracts.

For many years, the South Carolina Small Business Chamber of Commerce was concerned about the State procurement code, not because of China, but because we did not feel that in-state small businesses were getting their fair share of contract work.  After many years of lobbying, in 2009 the Small Business Chamber of Commerce (co-founded by Senator Knotts), the state’s General Assembly passed legislation that increases the chances that South Carolina small businesses will receive more state government contracts for their goods and services.  However, this procurement change did not apply to construction contracts, which have traditionally been solely based on low bid.

But the problem for small-locally owned businesses in government contracts isn’t just a local and state issue.  The largest government purchaser of goods and services, the United States federal government, is also a concern.

According to the American Small Business League (ASBL) Congress passed the Small Business Act in 1953 that set a goal of awarding 23% of all federal contracts to small businesses each year.  Sounds good doesn’t it.

So what small businesses have been the beneficiaries of this Congressional effort?  ASBL looked at the data from the Federal Procurement Data System and found these “small business” federal contractors in FY 2011:

Apple-IBM-Microsoft-Chevron-Shell-Sony-Siemens-Toyota-Coca Cola-Wells Fargo-Bank of America-Citigroup-General Electric-PepsiCo-Ford Motors-Home Depot-Xerox-JP Morgan Chase-Ernst & Young-PriceWaterhouse Cooper-Raytheon-Hewlett Packard-Panasonic-CVS-Verizon-Time Warner-Boeing-Disney-Comcast-Lockheed Martin-AT&T-Rolls Royce-British Aerospace-General Dynamics

ASBL says that these big businesses get away with being counted as small business contractors by the federal government and every year they siphon off billions of tax dollars intended for real small businesses “due to fraud, abuse and loopholes”.  ASBL lays the blame for this outrage primarily on the U.S. Small Business Administration and Department of Justice, for failing to enforce procurement laws; and on outdated carve-outs for special interests.

This problem has apparently existed for years with calls for Congress to act not having much success. 

Sounds like small businesses need a bulldog in Congress on this procurement issue.  How about it, Senator Knotts???

Transparency needed in government procurement

Two U.S. House Committees held a joint hearing yesterday on a potential executive order from the Obama Administration that will try to make sure government contracts are not being awarded because of campaign contributions.

This is a seriously important issue for every small business that would like to provide goods or services to the Federal government. Unfortunately, leading the charge against this transparency is the U.S. Chamber of Commerce.

Before the hearing, I participated in a press conference call sponsored by the Main Street Alliance, American Independent Business Alliance and American Sustainable Business Council. I serve on the steering committee for the latter. These organizations also sent a letter of support to the President.

Reporters on the call included the National Journal, NPR, Bloomberg, Roll Call and the Wall Street Journal. You can listen to the entire press conference call here , read the press release here, read some press reports here, here and here and read my opening remarks on the press call below.

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May 12, 2011 press conference call opening statement by Frank Knapp, Jr.

I’m Frank Knapp, President and CEO of the 5000+ member South Carolina Small Business Chamber of Commerce.

Today I am also representing the American Sustainable Business Council, a growing coalition of business networks and businesses committed to advancing a new vision, framework and policies that support a vibrant, equitable and sustainable economy. The Council brings together the business perspective, experience and political will and strength to stimulate our economy, benefit our communities, and preserve our environment. Today, the organizations that have joined in this partnership represent over 100,000 businesses and more than 200,000 entrepreneurs, owners, executives, investors and business professionals and other individuals.

Clearly an important issue in last November’s election was government accountability. And an extremely important tool for achieving that goal is transparency. The public and business community want, no, we demand to know that government decisions are being made in our best interest not for the benefit of deep-pocketed special interests. Transparency is a uniquely American ideal and is at the heart of every campaign finance disclosure and economic interest law in this country.

That’s the reason the groups here today support President Obama’s proposed executive order on disclosure of government contractors’ political spending. Because the Federal Government is the country’s largest purchaser of goods and services, small businesses demand a level playing field so that we can have the confidence that federal contracts are going to the businesses that can deliver the best products at the lowest cost. That’s a Main Street value and disclosure helps get us closer to that transparency goal.

This afternoon two House committees will hold a hearing on the proposed executive order. The title given to the hearing is, “Politicizing Procurement: Would president Obama’s Proposal Curb Free Speech and Hurt Small Businesses”

That certainly sounds like small businesses were invited to the party but reading the witness list it is clear that the hosts don’t intend to let us in the door.

Now small business organizations like ours are use to having our name used as a front for big business interests. The U.S. Chamber particularly likes to drape its big business agenda in a faux small business cloak.

About this executive order, the U.S. Chamber warns that disclosure will have a chilling effect on free speech. But we can’t ascribe a lofty principle to the motives of that organization when the real intention is to protect the ability of its big, dues-paying members to use their campaign checks to influence the procurement process.

The U.S. Chamber’s Board of Directors includes representatives of more than 50 companies that compiled over $44 billion in contracts with the government in 2010. “Free speech” for these corporations and the U.S. Chamber is just a code phrase for maintaining the influence big campaign money has over our democracy and government.

If a new disclosure rule is enacted, it won’t be small businesses that will be burdened. We are not writing big campaign checks so disclosure won’t be hard. The only contractors who oppose disclosure are the ones with something to hide from the sunlight. The ones that don’t believe in the Main Street value of fair competition. The ones that shudder at the thought of transparency because they know that Americans won’t like what they see and will demand even more reform.

Today you will hear from two small businesses that aspire to do business with government. And you will hear first hand why transparency through disclosure is badly needed.