New Federal Policy Could Create Billion-Dollar Loophole for Corporate Giants

June 12, 2006; 06:08 AM
PETALUMA, Calif. - House Republicans have issued a last minute proposal to the Small Business Reauthorization Act. The new policy would repeal an existing Federal policy that prevents large companies from using their franchises as fronts in order to obtain small business contracts. Under the new policy, franchises of large companies would be granted small business status.

ASBL President Lloyd Chapman is concerned that this is an attempt by the government to create another loophole, "I've seen this type of thing before - for over ten years the government has consistently tried to pass policies that allow them to report contracts to larger and larger companies as small business awards."

"This policy is a recipe for disaster. If it passes, I guarantee that next year, you'll see hundreds of Fortune 1000 companies set up their divisions as franchises in order to improperly receive Federal small business contracts." Chapman noted that the SBA tried to pass a similar policy last summer that would have allowed a venture capital company to be considered a small business if it owned 51% of a small firm.

There is an argument to be made that a franchise is an independently-owned small business when the bulk of risk and reward lie with the franchisee, however Chapman is concerned that this policy is going to open up another avenue of abuse for large corporations to obtain billions in small business contracts. Chapman recommends that any policy for franchises should have major restrictions in order to prevent wholesale abuse of small business contracting.

Steven Preston, President Bush's nominee for SBA Administrator, comes from ServiceMaster, a huge company made up of a network of thousands of franchises. If this new policy passes, it would greatly benefit ServiceMaster by allowing the government to report contracts to the company as small business awards.

The proposed policy was added days after Preston was nominated to head the SBA. Small business owners are concerned that he is already using his position to influence Federal policies that will benefit ServiceMaster and other major franchisors.

"It's very interesting that when Steve Preston shows up on the scene, a policy is proposed that would benefit his former company. It comes as no surprise that one of the only endorsements Preston has received is from the world's largest franchise association. Maybe he thinks he will be able to do for ServiceMaster what Dick Cheney did for Halliburton," Chapman added.

About the ASBL

The American Small Business League was formed to promote and advocate policies that provide the greatest opportunity for small businesses - the 98% of U.S. companies with less than 100 employees. The ASBL is founded on the principle that small businesses, the backbone of a vital American economy, should receive the fair treatment promised by the Small Business Act of 1953. Representing small businesses in all fields and industries throughout the United States, the ASBL monitors existing policies and proposed policy changes by the Small Business Administration and other federal agencies that affect its members.