Lockheed Martin is the largest federal contractor. It had more than $45 billion in revenue in 2013 and currently employs 112,000 people. But as far as the Small Business Administration (SBA) is concerned, it can be counted as a small business.

The federal government reserves some of its contracts, 23% for prime contracts and 36% of subcontracts, for small businesses. What constitutes a small business varies, but generally it can’t have more than 1,500 employees or have more than $38.5 million in revenue.

So how did Lockheed Martin and other huge corporations such as Boeing and General Dynamics qualify for contracts set aside for businesses of that size? At least partly due to the misconception that a small business acquired by a giant corporation may keep its status for several years, according to a report (pdf) by Public Citizen. That misconception starts at the top. SBA Administrator Maria Contreras-Sweet was asked last year by a House panel why large corporations were getting contracts set aside for small businesses. “We have a rule in place that says that once you get in a contract with government, that you are given five years. And so if a large company acquires a small business, then it is grandfathered in for a number of years,” Contreras-Sweet replied.

Except that’s not the case. According to a 2007 rule:

“In the case of a merger or acquisition, where contract novation is not required, the contractor must, within 30 days of the transaction becoming final, recertify its small business size status to the procuring agency, or inform the procuring agency that it is other than small. If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals. The agency and the contractor must immediately revise all applicable Federal contract databases to reflect the new size status.”

Other contracts go to large corporations because of accounting errors and some are deemed unlikely to be able to be fulfilled by a small business.

So later this year, on Small Business Saturday, support small businesses and stop by your local Lockheed Martin store and pick up a fighter plane or two.

-Steve Straehley

To Learn More:

Sleighted (by Taylor Lincoln, Public Citizen) (pdf)

Richest Corporations Received Millions of Dollars in Small Business Contracts (by Noel Brinkerhoff, AllGov)

Large Corporations Continue to Grab Contracts Meant for Small Businesses (by Danny Biederman and Noel Brinkerhoff, AllGov)