It took just 2½ weeks for the Small Business Administration to lift its suspension of GTSI Corp. But the aftershocks may last a lot longer.

The Herndon, Va.-based information technology vendor is now the subject of a SBA inspector general's investigation that could expand to include some of its corporate partners. Procurement experts said they expect stepped-up enforcement of small-business procurement rules, both because of higher priority from the Obama administration and because of a new law making it easier to prove a company is misrepresenting itself as a small business.

"This is very healthy for the industry," said Lars Anderson, a government contracts attorney at Venable who represented a GTSI rival in a lawsuit settled earlier this year.

"If they know the rules are going to be enforced, a lot of other companies will be careful not to cross the lines," he said.

In an 18-page settlement announced Oct. 19, SBA officials lifted the governmentwide suspension imposed Oct. 1. The deal came with the stipulation that two of GTSI's top leaders — including President and CEO Scott Friedlander — voluntarily step down, three other executives accept indefinite suspension and the company immediately cease working with small businesses serving as prime contractors on government jobs.

GTSI must also submit to oversight by an SBA-approved monitor, draft an ethics code that every employee must sign and turn over a lengthy list of records to the government that could become part of the inspector general's investigation.

To Robert Meunier, a former Environmental Protection Agency suspension and debarment official, the terms signaled the strength of the government's case.

"They took pretty dramatic action," he said.

By Friedlander's account, however, the settlement reflected the company's desire to survive, not an admission of guilt.

Even though GTSI believed that it was abiding by small-business procurement rules, the suspension was costing almost $2 million a day, he said in an Oct. 21 interview. By the second week, alarm over the possible repercussions had spread from the firm's work force to its banks and corporate partners, he said.

"We had to lift it [the suspension] to save the company or the company would have gone into financial ruin," he said, throwing some 530 people out of work. "I just think leaders have to lead and I had to do what I had to do." SBA officials never gave the company a chance to make its case, Friedlander said.

"As Americans and as companies, you require due process and I don't think we were given a fair due process," he said.

In response, SBA spokeswoman Hayley Meadvin said the agency followed all suspension and debarment requirements spelled out in the Federal Acquisition Regulation.

As part of the settlement, Friedlander, who became CEO eight months ago, and general counsel Charles DeLeon are resigning effective Oct. 26. The three other executives are on suspension with pay for as long as three years, although that period could be cut short if GTSI is debarred or the IG's investigation ends before then.

Imposed Oct. 1, the suspension appears to have arisen out of a protest filed two years ago by Wildflower International, a New Mexico-based small business that had lost its bid for a Homeland Security Department information technology contract, called FirstSource, intended as a small business set-aside.

In the protest, which ultimately succeeded, Wildflower charged that GTSI was part of a "sham" arrangement under which it stood to reap hundreds of millions of dollars by serving as a subcontractor to another company, called MultimaxArray, which Wildflower alleged acted as a small-business front for GTSI.

With the settlement, GTSI is giving up its other FirstSource work and will also abandon a recently announced venture with Brown Technology Group, a small business.

In all, the new limits will cost the company about 15 percent of sales, Friedlander said. Asked whether layoffs are expected, Friedlander said the company's future steps will be decided by the board and the company's new leadership.

GTSI has used a number of partners over the years.

The company joined with Eyak Corp. to create Eyak Technology LLC, an Alaska native corporation that is eligible for special treatment under government procurement rules. Three of the company's top four executives are former GTSI executives.

Representatives for Eyak Technology did not return phone messages last week asking whether they have been contacted as part of any federal inquiry. Citing the IG probe, Meadvin declined to comment on whether it will expand its inquiry or punish other companies besides GTSI.

Anderson, who represented Wildflower in its battle with GTSI, said he had no knowledge of where investigators were heading, "but one would assume that they would be looking at the companies that GTSI was allegedly using as fronts."

As a rule, 23 percent of federal prime contract awards are supposed to go to small businesses each year. Over time, critics say, a wink-and-a-nod system has evolved under which larger companies game the system with the help of federal officials who use small-business set-asides to sidestep competition requirements.

Federal procurement staffs often avoid the time-intensive process of conducting vendor competitions for contract awards by awarding sole-source contract awards under the SBA's 8(a) business development program, according to a July report by the Government Accountability Office. Another GAO report this year found that SBA needs better methods for ensuring companies receiving 8(a) contracting set-asides are eligible.

"There are multiple investigations that show that different companies are misrepresenting themselves," said Lloyd Chapman, president of the American Small Business League. "The public needs to be outraged by this."

A provision buried deep in the Small Business Jobs and Credit Act signed into law last month may add more teeth to small-business contracting rules. When a company incorrectly portrays itself as a small business — such as by registering on a government database — that misrepresentation will be considered "willful," the law says. As a result, any contract awarded can more easily be considered fraudulently obtained.

"I think it's very significant," said Elizabeth Newsom, a government contracts attorney at Crowell & Moring not involved in GTSI's case.

"Until this provision was in place, it was very hard for the government to prove that a company intentionally misrepresented its size status," Newsom said. "This clearly makes it a lot easier to prove that element, and that is an essential element for criminal fraud and for civil as well."

Like Anderson, Newsom viewed the new law and the GTSI suspension as portents of a tougher enforcement environment.

"I think certainly the Obama administration is increasing the government's oversight of fraud, waste and abuse across the board," she said. "This is not unique to small business."

Source:  http://www.federaltimes.com/article/20101024/ACQUISITION03/10240306/ 

The U.S. House passed the Small Business Jobs and Credit Act of 2010, H.R. 5297, which aims to help small businesses with tax breaks and loans availability.

The Small Business Jobs and Credit Act of 2010 bill passed the U.S. Senate on September 14, 2010 and passed the U.S. House of Representative on September 23, 2010 by a vote of 237-187, primarily along party lines with the Democrats carrying the bill. It is anticipated that President Barack Obama will sign the new legislation into law on Monday.

"The entities that are going to put Americans back to work are not found on Wall Street," said Senator Mary L. Landrieu (D-LA), the Small Business committee chairwoman. "They're found on Main Street. They're not big businesses. They're small businesses."
What's in the New Small Business Law

Generally, the new small business legislation provides a number of tax breaks, increases certain Small Business Administration's (SBA) lending limits that impact small firms by raising caps from $2 million to $5 million, and waives certain SBA loans fees. The new legislation provides banks, with assets under $10 billion, with $30 billion in new capital to increase lending to small firms and allows an 100 percent advance rate.

"The small-business jobs bill passed today will help provide loans and cut taxes for millions of small-business owners without adding a dime to our nation's deficit," President Barack Obama said. "After months of partisan obstruction and needless delay, I'm grateful that Democrats and a few Republicans came together to support this common-sense plan to put Americans back to work."
Small Business Lending to U.S. Manufacturers

The U.S. manufacturing industry is generally hopeful about the small business bill. For dealers and manufacturers, the legislation will extend the life of the SBA's Dealer Floor Plan Program (SBA DFP) to 2013, a stimulus provision previously set to expire this month. Also, the increase in loan caps from $2 million to $5 million will help manufacturing firms that typically hold $5 million in inventory at a time.

“Under provisions of this legislation, New York stands to receive more than $54 million to leverage small-business lending," stated Gov. David Paterson.

"Congress has now provided a great deal of certainty with this program and we strongly encourage lenders to utilize this important program to get credit flowing again to responsible marine companies throughout the United States," said Thom Dammrich, president of the National Marine Manufacturers Association (NMMA) in a statement.
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Small Business Legislation Nuts and Bolts - Photo by Francesco Marino
Tax Relief Provisions: General Business Credits and Alternative Minimum Tax

The new legislation provides more than $12 billion in tax relief provisions and creates eight new small business tax incentives aimed to encourage expanded business planning for investments in operations and hiring additional workers.

One of the small business tax relief provisions is the increase of the general one-year carry-back for general business credits to a five-year carry-back. Examples of business credits include the Employer Provided Child Care Credit and the Research and Development Tax Credit. The new legislation allows a five-year carry back for non-publicly traded small businesses with gross annual receipts for the last three years of less than $50 million.

Where a company has average gross receipts of $50 million or less for the last three years, another important change under the small business legislation is the end of the individual Alternative Minimum Tax (AMT) bar of general business credit for tax year 2010. Some small businesses are not able to take general business credits because of the AMT, which generally takes away general business credits from business owners subject to the individual AMT.

Small businesses should generally be glad about the tax write-offs in the legislation. For example, USA Today reporting on September 24, 2010 on the new legislation provides that “equipment purchases of up to $500,000 will be deductible for this year and in 2011.”

Mike Elmendorf, New York director of the National Federation of Independent Business, is a bit more pessimistic about the potential effect of the new legislative small business tax breaks. Elmendorf stated that the tax breaks "will help some small businesses," but that U.S. small firm's biggest problems are weak sales and uncertainty.
Partisan Split on the the New Small Business Legislation

Commentaries are still mixed on how helpful the new law will be to small businesses. Lloyd Chapman, the American Small Business League (ASBL) president's Huffington Post commentary on September 23, 2010 headline reads: "Jobs Bill May Be Harmful for America's 27 Million Small Businesses."

In Chapman's commentary, he takes great exception to what he describes as a loophole in the new legislation that may allow large companies to "fraudulently masquerade as small businesses without fear of prosecution." Among the ASBL's concerns is that the legislative language will allow for the diversion of federal small business contracts to big firms, noted by the organization as "owned by venture capitalist."

Additionally, during the bill's debate, Republicans criticized the funding as a repeat of the $700 billion Troubled Asset Relief Program (TARP) -- funding that was in part used to help big companies termed too-big-to-fail. Republicans also criticized the increased 1099 reporting provisions contained in the new legislation.

"It's a really, really big deal," said Scott Hauge, president of Small Business California, an advocacy group. Noting that small businesses in southern California account for more than half of all jobs in the state, Los Angeles Times writers Lisa Mascaro and Sharon Bernstein report that the Democrats' legislative victory on this bill will be central to the midterm elections.

"This is not a victory for the Democratic Party,” said Harry Reid (D-Nev), Senate majority leader and a supporter of the bill. “This is not a loss for the Republican Party. This is a win for the American people. This is going to help small business, which has always been the driver of jobs in our country."

General Disclaimer: This article is for informational purposes only and should not be used as a substitute for legal or tax advice.

Source: http://www.suite101.com/content/nuts-and-bolts-of-the-small-business-jobs-and-credit-act-of-2010-a289622

Well, that was quick.

Less than three weeks after tech firm GTSI Corporation was suspended from federal contracting for allegedly defrauding the small business contracting program, the U.S. Small Business Administration (SBA) has lifted the suspension. GTSI is eligible once again to win new federal government contracts.

GTSI announced the news this morning in a press release.

The SBA and GTSI struck a deal. GTSI agreed to immediately cease working with small businesses serving as prime contractors and to stop participating in the SBA’s mentor-protégé program and forming joint ventures with small businesses. GTSI will also hire an SBA-approved corporate monitor to report on the company’s compliance with the agreement. GTSI President and CEO Scott Friedlander and Senior Vice President and General Counsel Charles DeLeon also agreed to tender their resignations, effective October 26.

A copy of the agreement is posted here.

The SBA will continue its investigation of GTSI’s conduct as a subcontractor for certain small businesses, which could still result in administrative, civil or criminal penalties. As POGO blogged when the suspension was announced, GTSI is accused of forming sham subcontracting arrangements which enabled it to pocket taxpayer dollars intended for legitimate small companies. Section 16(d) of the Small Business Act prescribes fines of up to $500,000 and imprisonment of up to 10 years for anyone who misrepresents their company as a small business in order to obtain a federal contract or subcontract.

According to the American Small Business League (ASBL), GTSI reported to the government as far back as 1999 that it was no longer a small business for the purposes of contracting, yet from fiscal years 2004 to 2010, GTSI has received more than $1.18 billion in federal small business contracts. GTSI previously ran afoul of the SBA several years ago, narrowly avoiding debarment in 2005 after the SBA Inspector General determined the company had misrepresented itself as a small business in order to win a contract with the U.S. Navy.

-- Neil Gordon