An increasing concern jeopardizes the honesty of crucial federal government reserves for minority, women, veteran-owned, and small disadvantaged businesses.

Questionable organizations, often backed by major financial institutions, are taking advantage of loopholes and inadequate supervision to falsely claim eligibility with the federal government as “disadvantaged” firms.

Federal contracting operates as a zero-sum scenario. When a company is granted funds on a contract, it automatically deprives another company of the same opportunity. Misrepresenting themselves as a small disadvantaged business deprives deserving businesses of the chance to benefit from federal contracting opportunities that are crucial for their growth and prosperity.

Recent incidents highlight this issue. For example, contractors HX5 LLC and HX5 Sierra LLC from Florida, along with their owner, reached a settlement of over $7.7 million in June 2023 for falsely claiming disadvantaged business status. They were accused of giving false information about the owner’s assets and not disclosing payments to family members while securing contracts with NASA, the Army, and the Air Force.

R&W Builders of Illinois paid $400,000 to resolve allegations of fraudulently securing contracts designated for disadvantaged small businesses. They allegedly collaborated with a qualified disadvantaged business but broke program rules by taking control of the joint venture and completing the majority of the work themselves.

These concerns are deeply personal to me. I previously served as a special consultant to the head of the Small Business Association, where I established the standard protocols for the federal government’s 8(a) minority business program.

The 8(a) program is a crucial initiative aimed at assisting socially and economically disadvantaged small businesses in competing in the federal market. This nine-year program offers participants training, technical support, and contracting opportunities to enhance their competitive edge in the American economy.

These policies and programs are essential lifelines for minority-owned, women-owned, veteran-owned, and other disadvantaged businesses. The opportunities they offer are vital for creating a level playing field that allows these businesses to compete in a marketplace that has historically favored larger, more established corporations.

It is vital that genuine small disadvantaged businesses have reliable access to the opportunities provided by programs like 8(a). Small business set-asides present a remarkable opportunity for growth and innovation, which federal agencies should promote.

Having personally experienced the extensive and time-consuming verification procedures, I recognize the need for the SBA to collaborate with knowledgeable partners to ensure protection for small minority-owned businesses.

Furthermore, while governmental oversight remains critical, eligible small disadvantaged businesses should also play a role in closing the evident loopholes in the program’s self-certification process.

Safeguarding the integrity of the small-business set-aside program is more than just about fairness; it is about upholding trust in the federal contracting system. Minority-owned businesses and other disadvantaged enterprises need to trust that the opportunities earmarked for them are not being wrongly diverted by companies with no legitimate right to access them. When this trust is broken, the very purpose of the program is compromised.

One potential solution is to enhance oversight of firms claiming small disadvantaged business status, with strict penalties in place for misrepresentation, including hefty fines, imprisonment, and suspension from future contracts.

By combining these measures with advanced monitoring technologies, we can significantly protect the integrity of the program. For minority and small disadvantaged businesses to succeed in today’s competitive landscape, they must adhere to the rules without interference from fraudulent entities.

The SBA is reviewing the small disadvantaged business program after federal court decisions and has implemented a “pause” on new 8(a) applications with new regulations due in the fall.

My organization eagerly anticipates collaborating with the SBA and other federal agencies to take prompt and resolute action to tackle this issue and prevent unqualified businesses from unfairly exploiting the small disadvantaged business designation.

Preserving small-business set-asides for rightful beneficiaries will ensure that those programs are truly supporting the businesses they were designed to assist, promoting fairness, equality, and economic opportunity for all.

Roger Campos is the chairman and founder of the Minority Business Round Table.