The concerns of small businesses are being heard in Washington these days, as the Small Business Administration sends its annual report on the small business economy to the White House and Congress considers a measure designed to help smaller firms compete with larger firms for federal contracts.

Small businesses—defined by the SBA as those with fewer than 500 employees—make up 99.9 percent of all companies in the United States, according to the agency's report, “The Small Business Economy,” released late last year. Small businesses dominate the industrial distribution landscape as well; 54 percent of respondents to Industrial Distribution's 61st Annual Survey of Distributor Operations reported annual sales of less than $20 million. The survey will be released this summer.

There were more than 671,000 small business starts in 2005, according to the SBA report, and roughly 545,000 closures. That means about 127,000 new small businesses during that year, a net gain that helped propel the number of employer firms in the United States to nearly six million, an all-time high.

But even with that growth, small-business owners expressed pessimism about their prospects. Only 51 percent of small employers polled by the National Federation of Independent Business said they want to expand, and less than 10 percent said they hope to become “growth firms.”

According to the SBA report, small companies employed more than half of the entire U.S. workforce and generated roughly half of all non-farm gross domestic product during fiscal 2005.

Considered in terms of federal contracts, however, small businesses live up to their name. Of the $314 billion in government contracts awarded in 2005, small businesses landed only $79.6 billion, just more than 25 percent of the total.

That disparity prompted the passage in the U.S. House of Representatives of the “Small Business Fairness in Contracting Act,” aimed at giving small firms a larger share of federal business.

One provision of the bill sets the benchmark—which is a goal, not a legal requirement—for contracts going to small businesses at 30 percent, up from the current 23 percent recommendation.

In its original form, the bill also would have banned so-called “contract bundling,” in which larger companies submit a single bid for two or more government contracts.

Small business advocates say the practice puts smaller firms at a disadvantage, because larger companies' have more scale, resources, money and clout at their disposal to land the bundled contracts than their smaller competitors.

The House Oversight and Government Reform Committee amended the measure, HR 1873, to include a narrower ban that applies only to the bundling of contracts formerly held by small businesses.

The committee also decided not to include an annual recertification provision, which would have required all firms holding small business contracts to prove they are truly small on an annual basis.

Those changes irked the American Small Business League, which claims that the amendment allows large businesses to keep federal contracts that they may have won illegally by masquerading as smaller entities.

“If the bill is passed in its current form it could divert as much as $300 billion to the top two percent of U.S. firms over the next five years,” the league said in a statement.

Lloyd Chapman, president of the league, maintains that the legislation will not provide much benefit for small businesses, because more than 600 companies listed on Fortune magazine's roster of the country's 1,000 largest firms have won federal contracts by posing as small businesses.

“Quite frankly, [HR 1873] was very carefully written to look like a piece of legislation that's going to do a lot, but in reality it does very little,” Chapman says. “As long as you have several hundred Fortune 1000 companies in the small business database, what difference does it make what the percentage is? They could actually make it 100 percent—you could hit that goal and never award a single contract to a company that wasn't a Fortune 1000 company.”

Having passed through the House on a 409–13 vote May 10, HR 1873 is now headed to the Senate for consideration. Should it pass muster there, it will be sent to a conference committee where any differences between the House and Senate versions would be ironed out.

After that, it would pass to the White House for passage into law.

Though the Bush administration opposes the bill as passed by the House—in part because it believes that a benchmark of 23 percent of federal contracts is sufficient for small businesses—President Bush has not threatened to pick up the veto pen.