Small Business Activist Wins Interim Victory Against Pentagon, Sikorsky

For four years, the small but vocal American Small Business League has argued that large federal contractors mislead agencies and the public by overstating their use of small businesses as subcontractors to meet statutory goals.

In U.S. District Court in San Francisco last Friday, attorneys for the advocacy group led by Lloyd Chapman and based in Petaluma, Calif., successfully pried out the previously non-public names of suppliers and other subcontractors used by Sikorsky Aircraft Corp.

The helicopter maker had joined with the Defense and Justice departments in seeking to withhold such information as proprietary when submitted to the Pentagon under its 27-year-old Comprehensive Subcontracting Plan Test Program, designed to measure corporate potential for increasing small business opportunities in subcontracting.

Small business booster Chapman has long challenged the Pentagon’s program as nonproductive and oriented mostly toward obfuscating the degree to which large contractors win defense business intended for smaller ones.

After Chapman filed a FOIA request for the names of Sikorsky’s subcontractors, the company and the government resisted, winning a round in court last January. They argued that the FOIA request infringed on rights to withhold proprietary information. “Disclosure would provide competitors with information that they could use to improve their own systems and capabilities to Sikorsky’s detriment,” it said in a brief to protect its 2012 submission to the Pentagon.

The withheld information comprised “personal identifying information of Sikorsky employees, including their names, phone numbers and email addresses, which was not disclosed to protect the individuals’ privacy; information regarding Sikorsky’s training program, which is proprietary because Sikorsky’s approach to training distinguishes it from its competitors and likely is a relevant factor in evaluating the strength of Sikorsky’s bid proposals . . . [and] the dollar amounts of actual subcontracts awarded within the fiscal year, which is proprietary because it reveals Sikorsky’s purchasing strategies and methodologies and subcontracting forecasts.”

After several rounds of negotiations with District Judge William Alsup, Justice lawyers released versions of the document, each with fewer redactions than the last, before releasing the most revealing version yet on Nov. 10.

After examining the documents, Chapman told Government Executive this week he found them “indecipherable,” though just getting the new document made him feel he’d “struck gold. There are some interesting anomalies. For some companies we find no information, some have only one employee, and some are currently subsidies of Fortune 500 companies,” he said. “It’s a very peculiar list.”

In response, his lawyers will be requesting the names of all of Sikorsky’s suppliers and contractors. And in the near future,” Chapman added, he will be requesting the names of all the suppliers and subcontractors in Pentagon programs. “The significance is that contractors that participate in the Comprehensive Subcontracting Plan Test Program cannot withhold the names of subcontractors. It shows the Pentagon was right when it said that small business contracts have plummeted as result of the program.”

A Sikorsky spokesman, Paul Jackson, told Government Executive, “We continue to maintain that the Sikorsky Small Business Plan contains proprietary and confidential information, and we will continue to oppose any further release of the information in question.”

A Defense spokesman said he could not comment on pending litigation.

A Justice spokesman told Government Executive that the negotiated release of a less-redacted version of the document “does not resolve this matter as to those portions not released, nor will it answer the many unanswered questions as to what sort of investigation was conducted in the first instance by the defendants, and why this litigation was necessary.” He declined to comment on whether the content of the documents constitutes evidence in the dispute over whether large corporations misrepresent their use of small business subcontractors.

Chapman’s team, however, remains optimistic about continuing the case with a jury trial. “Some of the information we seek had actually been posted on government websites and issued in press releases by Sikorsky,” said one of Chapman’s attorneys, Jonathan Cuneo, a partner of the Washington, D.C.-based Cuneo Gilbert & LaDuca LLP. “The defendants hid behind a spurious trade secrets claim for four years. Ironically, this case involves information with no national security sensitivity about a single source, non-competitive Defense Department contract.”

Why did Congress renew this embattled Pentagon program?

By Lloyd Chapman The Hill March 8, 2017

Something very interesting happened with the passage of the 2017 National Defense Authorization Act (NDAA). Some unknown member of Congress included language in the bill that renewed the Pentagon’s embattled Comprehensive Subcontracting Plan Test Program (CSPTP) until 2027. Why is this so unusual? Every year since 1989 the CSPTP has been renewed one year at a time for the last 27 years and now suddenly, Congress renewed it for a decade.

Why? I think I know. I have been challenging the CSPTP in federal court lately. I think Congress and the Pentagon were afraid all the negative publicity my litigation has caused would make it difficult if not impossible to renew the CSPTP in the 2018 NDAA. Their solution: renew it for the next 10 years.

In 1989, the CSPTP was adopted under the guise of “increasing subcontracting opportunities for small businesses.” In reality, the CSPTP was designed to eliminate all transparency for the Pentagon’s largest prime contractors. It prevents people like me from obtaining data from the Pentagon that prove they are violating federal contracting law and cheating American small businesses out of billions in federal contracts and subcontracts.

 

The CSPTP also eliminated any and all penalties for non-compliance with federal small business subcontracting goals. Think of the absurdity of a program that eliminates all transparency in Pentagon small business subcontracting programs and eliminates all penalties for non-compliance with small business subcontracting goals and then test that theory for 38 years to see if it increases opportunities for small businesses.

In 2004, the Government Accountability Office (GAO) released a report that found there was no evidence the CSPTP had ever helped small businesses. In 2014, the Pentagon finally admitted the CSPTP had actually reduced subcontracting opportunities for small businesses. Pentagon spokesperson Maureen Schumann said the CSPTP “has led to an erosion of [the agency’s] small business industrial base.” The same year, Professor Charles Tiefer, one of the nation’s leading experts on federal contracting law, issued a legal opinion on the CSPTP. Tiefer described the CSPTP as a “sham” and “seriously harmful to small businesses.” Even the House Armed Services Committee has acknowledged there is no evidence the CSPTP has ever helped small businesses.

When I tried to obtain a copy of the data submitted to the CSPTP by Sikorsky Aircraft under the Freedom of Information Act (FOIA), I had to take the Pentagon to federal court. Both the Pentagon and Sikorsky refused to release the data. If the program has achieved its goal of “increasing subcontracting opportunities for small business” you would think they would be happy to release the data.

Federal District Court Judge William Alsup’s comments in the case are very telling. In a Nov. 6, 2014 hearing Judge Alsup stated, “The purpose of the Freedom of Information Act is so the public can see how our government works. Congress passed this law to make small businesses have access to some of these projects, and here is the United States covering it up.” In a hearing on Jan. 20, 2015, Judge Alsup stated, “So it would be more like a David and Goliath. You get to come in there again against the big company and against the big government … They are trying to suppress the evidence.”

Congress has renewed a Pentagon program into its 38th year, even though the Department of Defense admitted has harmed small business subcontracting opportunities. Lawmakers renewed a Pentagon program that one of America’s leading experts on federal contracting law described as a “sham.” They renewed the program even though the GAO and the House Armed Services Committee have both acknowledged there is no evidence the CSPTP has ever helped small businesses. They renewed the CSPTP even after a federal judge accused the government of “covering it up” and trying “to suppress the evidence.”

The fact that Congress has renewed an obvious and blatant anti-small business and job killing program into its 38th year of testing is one of the most disappointing examples I have seen on how broken and dysfunctional our government actually is.

Who put the anti-small business language in 2017 NDAA?

By Lloyd Chapman The Hill September 23, 2016

I would like to know specifically who put the three provisions in the 2017 National Defense Authorization Act (NDAA) that would essentially dismantle federal small business programs. Who thought it was a good idea to make the Comprehensive Subcontracting Plan Test Program (CSPTP) permanent?

The Pentagon comes up with a program 27 years ago to “test” if eliminating all transparency and penalties for non-compliance with small business subcontracting goals is actually going to “increase subcontracting opportunities for small business” for Pentagon prime contractors. Did I mention they have been testing that theory for 27 YEARS!

The Pentagon finally admitted in 2015 the CSPTP had actually reduced subcontracting opportunities for small businesses and requested it not be renewed. Congress renewed it anyway. A legal opinion by Professor Charles Tiefer stated, “The program is a sham and its extension will be seriously harmful to vital opportunities for small business to get government contracting work… Let it expire.”

Why has the Pentagon refused to release even a single piece of paper that has been submitted to the CSPTP in 27 years? Why did I have to go to federal court just to get the reports that were submitted to the CSPTP by Sikorsky?

I know my reputation in Washington is that of a conspiracy nut so let’s see what Federal District Court Judge William Alsup said about me in my case against the Pentagon’s 27-year old test program. “So it would be more like a David and Goliath. You get to come in there and be the underdog again against the big company and against the big government… They are trying to suppress the evidence.”

Let’s take a look at another quote from Judge Alsup in another hearing in the case won against the Pentagon. “The purpose of the Freedom of Information Act is so the public can see how our government works. Congress passed this law to make the small businesses have access to some of these projects, (here comes my favorite part) and here is the United States covering it up.” Ouch. “Covering it up”?

Why would anyone on the Senate Armed Services Committee recommend a program be made permanent that needed “covering it up”? Why would anyone on the Senate Armed Services Committee want to make a program permanent that involved, “They are trying to suppress the evidence”?

Let’s move on to the other anti-small business job killing provisions in the 2017 NDAA, the exclusion of small businesses from foreign contracts. Why? The Small Business Act says 23% of “all” contracts. I think the word all is pretty clear. I don’t think the word “all” is ambiguous.

Is the problem in America that we’re just creating too many new jobs? Is it that unemployment is just was too low so we need to reduce federal contracts to small businesses to get that under control?

How about the worst and final anti-small business job killing provision? Allowing the inclusion if first and second tier subcontracts to be included toward the 23% small business prime contracting goal. This provision would essentially create a loophole that would allow the Pentagon and its prime contractors to completely fabricate compliance with the 23% federal small business contracting goals.

Do we really need more loopholes to cheat small businesses? Isn’t it enough the SBA has created their blatantly illegal “grandfathering policy” so billions in federal contracts to Fortune 500 defense contractors can be reported as small business contracts? Hasn’t the federal government cheated American’s 28 million small businesses enough with the SBA’s “exclusionary rule” where they can claim small businesses received 23% of all federal contracts by excluding the vast majority of federal acquisition from their calculations?

Today under federal law, the 98% of all U.S. firms that have less than 100 employees, that are responsible for over 50% of the private sector work force and 50% of the GDP and over 90% of the net new jobs are supposed to receive a meanly little 23% of all federal contracts.

That means the 2% of all firms in the U.S. can rake in 77% of all the money the federal government spends. Think about that. 77% of every dollar the federal government spends to just 2% of the firms in the United States. Can’t the corporate giants be happy with that?

Congress should investigate Pentagon cover up in FOIA cases

By Lloyd Chapman The Hill April 26, 2016

I think Congress should investigate why a federal judge has accused the Pentagon, and some of its largest prime contractors, of trying to cover up and suppress evidence of what appears to be a significant case of corruption and fraud at the Pentagon.

In December of 2014, I won my latest Freedom of Information Act lawsuit against the Pentagon. I had requested small business subcontracting reports submitted by Sikorsky Aircraft to the Pentagon’s 26 year-old Comprehensive Subcontracting Plan Test Program (CSPTP).

I believe the information I requested would prove the Pentagon and its major prime contractors used the CSPTP to circumvent the Small Business Act and cheat American small businesses out of trillions of dollars in subcontracts over the last 26 years. The Pentagon’s violent objection to the release of what should be very benign information seems to confirm my suspicions.

In a November 6, 2014 hearing, Federal District Court Judge William Alsup stated, “The Purpose of the Freedom of Information Act is so the public can see how our government works. Congress passed this law to make the small businesses have access to some of these projects, and here is the United States covering it up.

After I won the case in December, the Pentagon and Sikorsky appealed the case to the 9th Circuit Court of Appeals. This was a surprising move from the Pentagon since the 9th Circuit ruled over 25 years ago the Pentagon could not withhold small business subcontracting data from the Freedom of Information Act.

In a January 20, 2015 hearing, Judge Alsup stated, “So it would be more like a David and Goliath. You get to come in there and be the underdog again against the big company and against the big government.” Judge Alsup went on to say, “They are trying to suppress the evidence.”

Yet, the small business subcontracting reports have yet to be released. So what exactly is the Pentagon trying to cover up? Why are they trying to suppress the evidence?

Not one member of Congress has ever seen any reports or data on the CSPTP since the program began in 1989.

Under the guise of “increasing subcontracting opportunities for small businesses” the CSPTP did just the opposite. The 26-year-old test program eliminated all transparency and removed any penalties for prime contractors which failed to reach their small business subcontracting goals.

I have been fighting the Pentagon to end corruption and fraud against small businesses for over 25 years. I have been compared to a modern day Cesar Chavez for small businesses and recognized as one of the four strongest voices for small businesses in Washington. This summer, I will begin to release a series of documentaries of the history of corruption and fraud in federal small business contracting programs.

Earlier this month, the Pentagon refused to comply with another of my Freedom of Information Act requests for small business subcontracting reports submitted by British Aerospace and Engineering. Clearly the Pentagon and its prime contractors have something to hide.

The Small Business Act, which mandates a minimum of 23% of all federal contracts be awarded to small businesses, is the single largest government economic stimulus program for the middle class. The Pentagon’s campaign to thwart this federal law has caused significant financial harm to the American middle class and the nation’s 28 million small businesses. The Pentagon’s anti-small business agenda needs to end now.

I think it is time for Congress to end the 26-year-old mystery of the Pentagon Comprehensive Subcontracting Plan Test Program. Congress should hold hearings, and the Pentagon should be forced to make all the reports submitted to the CSPTP publicly available.

I am confident Congress will discover the CSPTP is a sham and should be eliminated immediately.

GAO investigation of SBA should prompt Congressional hearings

By Lloyd Chapman The Hill November 19, 2015

The GAO recently released a damming investigation of the SBA titled, “Leadership Attention Needed to Overcome Management Challenges,” that should prompt Congressional hearings on the GAO’s findings.

The most alarming statement in the investigation states the SBA has a “lack of compliance with laws and regulations.

I was pleased to see the GAO decided to investigate the SBA. Their findings were not a big shock to me. I have been sounding the alarm on the fact the SBA “is not complying with laws and regulations” for several years. I have released hundreds of press releases and blogs on the abuses at the SBA. I even produced a short documentary on the issue.

The GAO’s findings at the SBA were nothing new. In 2003, the GAO released an investigation of the SBA and federal small business contracting programs that found over 5,300 large businesses were receiving federal small business contracts. That investigation was based on information I provided to the GAO. I was invited by the House Small Business Committee to testify at that hearing. That investigation was based on FY 2001 data. Fiscal year 2015 is now the fifteenth year that billions of dollars in federal small business contracts have been diverted to big businesses.

In 2014, the GAO released a damming investigation of the SBA Office of Advocacy titled “Office of Advocacy Needs to Improve Controls over Research, Regulatory, and Workforce Planning Activities.” That investigation was extremely critical of the SBA Office of Advocacy and also found they were “not complying with the law and regulations.” The GAO exposed the fact they were essentially running a taxpayer-funded lobby for big business.

There have been a long series of federal investigations and investigative reports in the media that have exposed blatant fraud and abuse in virtually every program administered by the SBA. It’s time for Congress to get to the bottom of these issues, uncover the specific individuals at the agency that are responsible for the abuses and put an end to it once and for all.

In 2005, the SBA’s own Inspector General released Report 5-15 that stated, “One of the most important challenges facing the Small Business Administration (SBA) and the entire Federal Government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards.” For over ten years every SBA Inspector General has repeated that sentiment in their reports to Congress.

The diversion of federal small business contracts to Fortune 500 firms has been covered in numerous investigative reports by ABC, CBS, NBC and CNN. Virtually every major newspaper in the country has covered the issue.

In May, Public Citizen released their investigative report titled, “Slighted” on fraud and abuse in federal small business contracting programs.

The American Small Business League (ASBL) has released numerous reports based on information from the Federal Procurement Data System that has shown every year over one hundred Fortune 500 firms are receiving federal small business contracts. The largest of recipients was Verizon with over $108 million in federal small business contract awards in FY2015 through their wholly owned subsidiary Terremark.

A congressional hearing needs to be held on the SBA and it should focus on the three excuses the SBA has used for over a decade to try and explain the diversion of federal small business contracts to corporate giants.

The first is their typical excuse of miscoding, anomalies, data entry errors, simple human error and computer glitches. True random errors would have a random pattern of distribution like flipping a coin. We do not see this true random pattern with SBA data. At the SBA, every year for over fifteen years all the supposed errors always divert federal small business contracts to large businesses. Congress should end this ridiculous excuse the SBA has used countless times to obscure the blatant abuses in their programs.

Next is the SBA “grandfathering” or “five year rule.” This policy is indirect violation of the Small Business Act that specifically prohibits large business from acquiring small businesses and continuing to misrepresent those firms as legitimate small businesses.

Last, but not least, is the SBA “exclusionary rule.” This policy is also in direct violation of the Small Business Act. Under the SBA’s exclusionary rule, they dramatically inflate the percentage of federal contracts to small businesses by excluding billions of dollars in federal contracts from their calculations. Federal law mandates small businesses receive a minimum of 23% of the “total value of all prime contract awards.

If Congress were to hold a hearing on the GAO’s investigation of the SBA, it could end the rampant fraud and abuse in all federal programs administered by the SBA. This could redirect billions in federal small business contracts back into the hands of the 28 million small businesses were most Americans work. This would no doubt create millions of jobs and provide a significant boost to our nation’s middle class economy.

I would think President Obama would be in favor of ending the abuses at the SBA. As early as 2008 he stated, “It is time to end the diversion of federal small business contracts to corporate giants.

If Congress refuses to act on the GAO’s findings that the SBA is not complying with the laws and regulations, I think it would be tantalum to a tacit approval of the rampant fraud and abuse in federal small business contracting programs.

It would also indicate Congressional approval of the continuation of the fraud and abuse that has cheated American small businesses out of billions if not trillions of dollars in government contracts.