The Katrina Controversy

It has been 18 months since Hurricane Katrina whipped through the Gulf Coast. Many small businesses have cleaned up the debris but haven't been able to wash away their woes. Chief among their complaints is the black box process involved in getting government contracts to help repair the area and their bottom line. So last week Washington, D.C., trooped down to New Orleans, where federal agencies and small businesses brought out their boxing gloves.

By law, federal agencies have to hire a certain number of small businesses when they send out work or order supplies. The Small Business Act aims to help smaller companies by setting goals for each agency to meet in hiring those contractors. While the goal differs based on the services that the agencies require, many generally fall short anyway. Katrina was supposed to give federal agencies a chance to repair their records by championing local businesses in construction and other cleanup. Last Thursday's hearing determined little, revealing confusion as the reigning champion.

Charles Priestley of Hummingbird Aviation said that before Katrina hit, his air transport company routinely did government work. "But since Katrina, we have found the difficulties associated in dealing with federal agencies to be a real barrier to rebuilding our business," said Priestley, director of operations at the Hammond, La., company.

Like many companies that are supposed to benefit from winning government work, he complained about the high hurdles. Priestley said each time he pitched a new agency he'd have to start from scratch. He said agency employees often placed logjams before his efforts to apply for contracts. "The amount of redundancy in the process has prevented us from filing applications that just did not seem worth the upfront expense," he said. Other local businesses echoed his thoughts, saying they were too busy trying to get on their feet to deal with the mountains of paperwork.

Rep. Nydia Velazquez, the House Small Business Committee chair, took officials to task for shutting small and local companies out of the process, blaming mismanagement. Only about 7 percent of Katrina-related contracts awarded so far went to those companies, and more than half of them were for less than $100,000, she said. Local minority entrepreneurs fared even worse, grabbing 4 percent of government contracts.

Top officials of the General Services Administration, Army Corps of Engineers, Defense Department, and three other agencies fought back, contending they had done more with small businesses than charged. Separately, the Small Business Administration said last week that 29 percent of the $15.6 billion Katrina contracts went to small businesses overall, not just in the region. That exceeds the government's overall goal of 23 percent.

A Government Accountability Office report issued last month reflected the jumbled picture. It looked at how four government agencies fared in hiring small and local businesses through May 2006. It found that local businesses in Alabama, Louisiana, and Mississippi got about 18 percent, or $1.9 billion worth of work. Of that, two thirds went to small businesses. At the same time, the report criticized the agencies for subpar reporting standards, saying that data were often incomplete and inaccurate.

Round 2 comes later this week when the House committee broadens the debate. It will hold a hearing Thursday to review proposals for how small businesses can better win federal contracts.