I-Team: Large Corporations Grabbing Contracts Meant For Small Businesses

BOSTON (CBS) -- Under the law, almost one quarter of all federal contracts are supposed to go to small businesses -- a recognition that small business is the engine that drives our economy.

But an I-Team investigation has found the federal government is dropping the ball, allowing huge corporations to grab contracts meant for small business.

"Each day we have a success is a success not just for me and my business, but it's for the 30 families that pull a paycheck and are feeding their families," says Janet Ceddia, who owns a small business, Security Construction Services in Hudson, that depends on federal contracts.

"For us it probably represents 80 percent of our revenue," Ceddia says.

But the I-Team found in Massachusetts tens of millions of dollars in contracts awarded by federal agencies are listed as going to small businesses, but are in fact going to huge Fortune 500 companies.

Some examples: defense giant Raytheon received $30 million; Global Partners, $25 million; Thermo Fisher Scientific, $18 Million; and Boston Scientific, $3 million.

"Massachusetts small businesses should be getting about two billion a year in government small business contracts; they're probably getting maybe a fourth of that," says Lloyd Chapman, founder of the American Small Business League.

Chapman says it's a national problem.

"I think the American people would be just stunned if they saw what was really happening with these small business contracts," he says.

What is stunning is the U.S. Small Business Administration (SBA) has known about this for years.

The I-Team found 10 reports by the SBA Inspector General dating back to 2005 all saying the same thing: flaws in the system allow large firms to land small business contracts.

"If President Obama would stop the government from diverting small business contracts to Fortune 500 firms," Chapman says, "it would put more money into the middle class and create more jobs than any economic stimulus program that President Bush or President Obama ever put forth."

In a statement, the SBA says it "believes it is essential that the benefits of small business government contracting opportunities flow to the intended recipients."

Janet Ceddia isn't buying it.

"It feels a little hopeless, like will they ever be able to solve it?

SBA officials blame an array of bureaucratic challenges -- from federal agencies mislabeling large companies as small businesses to simple human error.

According to the SBA, last year small businesses received $91 billion out of a total of $422 billion in federal contracts.