On the campaign trail in 2008, then–Senator Barack Obama proclaimed that "it is time to end the diversion of federal small-business contracts to corporate giants." He was referring to a provision of the 1997 Small Business Reauthorization Act that called for 23 percent of the dollar value of all US government contracts to go to small businesses, a rule that was routinely ignored during the Bush administration. Then in the summer of 2014, Obama's Small Business Administration declared victory, with SBA administrator Maria Contreras-Sweet proclaiming happily that "when we hit our small business procurement target, it’s a win."

The achievement was even a rare glimpse of bipartisanship in a polarized Washington. Missouri Republican Sam Graves said it "demonstrates that the reforms enacted during the past two Congresses are working," and touted legislation aimed at raising the target to 25 percent.

The only problem is that, according to a persuasive report released in early May by Public Citizen, it's not true.

A loophole lets big companies get credited as small ones

Public Citizen's analysis of federal government contracting data shows that contracts awarded to gigantic multinational aerospace and defense companies are counted toward meeting the government's small business goals.

In a September 2014 hearing, Representative Nydia Velázquez (D-NY) asked Contreras-Sweet about this odd list of small business contractors, and she explained that there's an enormous loophole:

In reviewing the list, I had a similar question, and when I took a deep dive to understand what the answer was to that important question, what I learned is that 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. And so that is one of the instances that we identified.

In other words, when a contract is awarded to a subsidiary of Northrop Grumman that used to be an independent small business, that counts as a small-business contract. This rule makes talk of hitting a 23 percent goal sound rather hollow.

But the loophole isn't even real

But it also does not appear to even be a real rule. The relevant SBA regulation, promulgated in 2007 and still on the books today, says (emphasis added):

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.

The grace period, in other words, is 30 days — not five years.

Errors and exclusions further undermine the 23 percent goal

There are two more major sources of doubt that the 23 percent success is important — reporting errors and a second gigantic loophole.

Errors: The SBA's inspector general found almost $2 billion in 2013 contracts had been awarded to ineligible firms or otherwise misclassified due mostly to "errors made by government contracting personnel, including misapplication of small business contracting rules."

The SBA's inspector general found almost $2 billion in 2013 contracts had been awarded to ineligible firms or otherwise misclassified due mostly to "errors made by government contracting personnel, including misapplication of small business contracting rules." Exclusions: Last but by no means least, the 23 percent target turns out not to be a true 23 percent target. Instead, the goal is for small businesses to receive 23 percent of contracting dollars for which small firms are eligible. Of the government's $460 billion contracting budget, fully $105 billion was classified as part of contracts that were too big for small companies to be viable bidders.

All told, the troubling reality is that not only is federal contracting not in compliance with the guidelines — the relevant agencies aren't even collecting the data in the right way to tell what is happening. It's true that without the five-year loophole and the exclusions, the 23 percent goal might simply be unrealistic. But if that's the case, the country would be better off with a lower goal and a more rigorous measurement.