SBA Calls Federal 'Exemptions' Illegal - $640 Billion in Contracts Diverted from Small Businesses

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SBA Legal Opinion Inspires Small Business Crusader to File Petitions to Rescind Regulations He Calls on the Bush Administration to Prohibit Biased Rules and Practices

Small Business Advocate, Raul Espinosa, Founder of the Fairness in Procurement Alliance (FPA), representing the procurement interests of 10 million small businesses, announced a long overdue, but historic legal ruling by the Small Business Administration (SBA) benefiting thousands of small and minority businesses contracting with the federal government.

Espinosa's legal filing caused the SBA to rule that the General Services Administration (GSA) must adhere to the statutory set aside rules for contracts between $3,000 and $100,000. GSA had claimed, for years, that under the "exemptions," it could ignore the set aside rules in its schedule program, where more than $44 Billion of purchases are made. Specifically, the SBA confirmed that the Small Business Act protects small businesses from being forced to unfairly compete against large businesses under the GSA Federal Supply Schedules.

Following this September 4, 2007 SBA opinion, Espinosa initiated two important actions designed to force government regulators to make regulatory changes respecting the SBA opinion and the mandate of Congress.

Espinosa said, "FPA has petitioned Paul Denett, Administrator of the White House Office of Federal Procurement Policy (OFPP), using a whistleblower statute, and The Office of Advocacy, through their new 'Regulatory Review and Reform Initiative' to rescind the exemptions." Espinosa concluded, "We will accept nothing short of their complete elimination from the Federal Acquisition Regulations (FAR)."

Espinosa's Congressman, John Mica, in support of his actions, has written letters to Jim Nussle, Director of The Office of Management and Budget (OMB), "asking for OMB to investigate the specific problems sighted by FPA and Mr. Espinosa" and to Congressman Thomas Davis III, Ranking Member of the House Committee on Oversight and Government Reform, "requesting for the Committee to conduct a review of the OMB procurement policies."

According to Espinosa, "The 'exemptions' are directly responsible for having excluded, illegally, $640 Billion in Federal contracts - over the last decade - from small and minority businesses."

Espinosa added, "These illegal regulations have done more damage to public confidence in government contracting and to the economic viability of small business than 9/11 and Katrina combined and FPA is determined to stop their influence on the procurement community."

Espinosa's attacks against the illegal regulations resulted in this historic SBA Legal Opinion issued in response to his GAO Protest (B-309911) which challenged the 'exemption authority' and statutory standing of those regulations.

The SBA Legal Opinion states, "As it stands now, agencies believe that the Small Business Act's programs do not apply to either the GSA Schedule contracts or orders issued off the contracts. This is clearly contrary to statute and Congressional intend. Small business set asides are mandatory for acquisitions valued from $3,000 to $100,000 and take priority over GSA Schedule contracts."

In summary, SBA states "the (set-aside) statutory provision creates a mandatory small business reservation for acquisitions valued below $100,000" (and in some instances up to $250,000) and further confirmed that "there is nothing in statute or GAO ruling indicating that a GSA Schedule contract should or can take priority over this statutory mandated small business reservation requirement." SBA also affirmed that, "this (set-aside) statute does not exempt GSA Schedule awards or orders issued pursuant to the Schedule contract from the Small Business Act."

Small business community leaders and fair competition advocates have uniformly endorsed the SBA's views in their commentaries on this momentous legal opinion.

Max Kidalov, former Republican Counsel of the Senate Committee on Small Business and Entrepreneurship, said, "This SBA decision is a huge win for the small business community and fair competition." He added, "SBA has confirmed what Congress has been saying all along: the so-called 'set-aside exemptions from the Small Business Act have no legal justification. Now, it is time for the GAO to hold bureaucrats accountable for ignoring Congressional policy on fair treatment of small businesses."

Since 2001, Congress has been strongly pressing Federal agencies to comply with the Small Business Act to all Federal contracts. For instance, the Senate Small Business Committee had targeted attempts to exempt from the Small Business Act, contracts by GSA, the Postal Service, the Department of Energy, the Transportation Security Administration and overseas contracts by State and Defense Department. In a letter dated January 15th, 2005, to Department of State Secretary Powell, Senator John Kerry and Sen. Olympia Snowe, Chair and Ranking Member of the Senate Committee on Small Business and Entrepreneurship stated, "Executive Departments do not have the discretion to interpret the law in a matter inconsistent with its plain language. The unambiguous Congressional intent (is) that the Act governs all procurements."

Roger Campos, President and CEO of the Minority RoundTable (MBRT) and Member of the SBA National Advisory Board commented, "this Legal Opinion, freeing in excess of $60 Billion in annual contracts for small businesses, opens the way for the Senate to support the House Bill (H.R. 1783) calling for an increase in the set-aside ceiling from 23 to 30 percent."

Hank Wilfong, President of the National Association of Small and Disadvantaged Businesses (NASDB) said, "OFPP must now re-train the entire government procurement workforce with rules favorable to small businesses." He added, "SBA must now also instruct its field staff to begin assisting small businesses who challenge procurements under $100,000 which are either restricted to GSA Schedule Holders Only or are considered Foreign and exclude small and minority businesses."

Anthony Robinson, President of MBELDEF said, "This SBA Legal Opinion is extraordinary because it verifies that the 'set-aside exemptions' are and have always been illegal and discriminatory towards small and minority businesses."

Lloyd Chapman, President of the American Small Business League (ASBL) said, "This historic SBA legal opinion confirms that the exemptions are responsible for having diverted more than $600 billion in federal contracts away from small businesses over the last ten years."

Dr. Henry Thomas, Director of the FPA Think Tank at UNF concluded by saying, "FPA should now be given a say on any decision which would re-align the procurement landscape the way Congress intended."

Espinosa's success, as an advocate for small and minority businesses, is well known. In 2005 he initiated and carried through the court, a major size-protest test case (SIZ-2005-05-09-22) just to demonstrate that the current 'size protest system' did not deliver justice when a small business won the case and the system needed to be overhauled. "Overcoming adversity while growing up," Espinosa said, "made me determined and effective, as an advocate, with an affinity to fight injustices. I've been privileged to have had great public servants as mentors who taught me how to negotiate and deal with the government bureaucracy. I am now thankful for that experience and for the opportunity to make a difference."

The Fairness in Procurement Alliance (FPA) represents the procurement priorities of all the groups for whom Congress created the set-aside program, a constituency of 10 million businesses. The mission of FPA is to bring fairness to public procurements so that small and minority businesses can both compete and prosper at the federal, state and local levels.


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