The suspension of GTSI Corp. from future federal business over allegations that it used front companies to circumvent federal acquisition rules is sending shockwaves throughout the contractor community.

Experts are wondering whether this will be the first of many suspensions, whether fines or criminal charges will follow, and whether lawmakers will pass new legislation to curtail set-asides designed to help small, minority-owned, and disadvantaged businesses.

The suspension by the Small Business Administration was the first federal action against a large government contractor since the Environmental Protection Agency suspended IBM in 2008 for allegedly breaching contracting rules.

GTSI won almost $549 million in federal sales in 2009, according to its latest annual report.

"The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set aside for small businesses being awarded to ineligible contractors, and with contracts not being performed in accordance with applicable law, regulations and contract terms," SBA suspension and debarment official Michael Chodos said in an Oct. 1 letter to the company.

GTSI has 30 days to contest the suspension. On its website, the company said it plans to address SBA's concerns, but acknowledged it could face fines or debarment.

SBA's decision came the same day The Washington Post published an article detailing GTSI's long-standing connection to Eyak Corp., an Alaska native corporation that can win contracts without having to compete for them.

In a separate arrangement with another company called MultimaxArray FirstSource, GTSI was in line to receive 99.5 percent of any revenues generated under a 2008 Homeland Security Department contract designated for small businesses even though it was only the subcontractor, the Post article indicated.

Asked whether the Post's story influenced the suspension decision, SBA spokeswoman Hayley Matz said the agency's inquiry has been ongoing.

Matz declined to say whether other firms are under scrutiny for related improprieties.

Last week, Sen. Claire McCaskill, D-Mo., told the Post she would introduce legislation next year to limit the special treatment Alaska native corporations now receive.

This was not GTSI's first brush with federal investigators.

Earlier this decade, the SBA inspector general recommended permanently debarring GTSI from federal work on the grounds that it had misrepresented itself as a small business, according to a December 2006 e-mail from an SBA spokeswoman obtained by the watchdog group, Project on Government Oversight.

But because the alleged fraud did not involve an SBA contract, the agency referred the issue to the Defense Department, which passed it to the Army. There, officials opted not to take action. An Army spokesman was unable last week to provide any more information on the reasons for that decision.

GTSI, which disputed any wrongdoing, continued to win hundreds of millions of dollars in federal business. Last year, federal sales accounted for 72 percent of its revenue, according to the annual report.

Lloyd Chapman, president of the American Small Business League, alleges that numerous large companies improperly take work — either as prime contractors or subcontractors — that is set aside for small businesses or Alaska native corporations.

"GTSI is the tip of the iceberg," he said. Chapman is a sharp critic of SBA for not better enforcing the integrity of small business set-aside programs.

‘Uneven' use of suspensions

The GTSI case is prompting some to ask whether the government's suspension and debarment process works.

It is among the government's most powerful instruments for confronting problem contractors, but officials frequently don't bother using it, people familiar with the process said.

"There's been about 10 agencies that are very active and have a lot of experience," said Robert Meunier, a retired EPA debarring official who made headlines two years ago when he briefly suspended IBM. "There are many that have rules in place; they do not take the action."

Sharing that view is Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee, who has held hearings on the suspension and debarment process.

"We're disappointed with the fact that it has not worked as well as we would like," Towns said in an interview last week. "It is not applied evenly."

In 2008, lawmakers sought to shed light on those disparities by requiring the Interagency Suspension and Debarment Committee, a governmentwide group of debarment officials, to report annually to Congress on what agencies are doing. Two years later, no report has been completed. Committee chairman Dan Blalock, a Navy attorney, attributed the delay to the responsibilities of his regular job and said he hoped to turn in the report by early November.

"The fact that we have not received it makes me wonder whether the oversight is really occurring," Towns said.

The suspension and debarment system is not intended to punish companies, but rather to protect the government's interests. A temporary suspension may follow an indictment or other suspicion of criminal activity; debarment, which typically lasts three years, can result from criminal conviction or civil penalty.

"You have to remember that it is a judgment call," said Richard Bednar, a former Army debarring official now with a firm that helps contractors comply with the law. "It's forward looking; it's not additional punishment for what's already happened."

That call, however, can be shaped by factors that have nothing to do with contractor performance. In some cases, debarring officials — who can be part-timers or political appointees — may not realize the authority they wield, Meunier said.

"The rules grant the debarring official very, very broad powers," he said.

"There's almost nothing they cannot react to." Among the agencies that have been most active in using those powers, he said, are the Army, Navy, Air Force, Defense Logistics Agency, EPA, Housing and Urban Development Department and General Services Administration.

One agency faulted for not using suspensions or debarments enough is the U.S. Agency for International Development. The agency's inspector general said in a report last year that it "has not adequately protected the public interest by responding to contractor impropriety in accordance with federal guidance."

The agency's suspension and debarment official, as well as its evaluation division, were burdened with too many other responsibilities, the report said.

In addition, they relied solely on the IG's office to refer possible suspension and debarment actions.

Likewise, the Government Accountability Office this month found that agencies rarely, if ever, suspend or debar contractors that are among the biggest repeat violators of wage, labor and workplace safety and health laws.

Source:  http://www.federaltimes.com/article/20101011/ACQUISITION03/10110301/1011/ACQUISITION

AND THE EXPERTS WEIGH IN. Scott A. Shane of Case Western University says that reducing uncertainty is the ticket for economic growth. Gary Shapiro, president and chief executive of the Consumer Electronics Association says small businesses, entrepreneurs and innovators are bearing an unfair regulatory burden. Representative Bill Cassidy says that the threat of higher taxes tomorrow is enough to stifle hiring and investment today. The political activist Lloyd Chapman argues that federal small-business tax breaks are not enough.

Source: http://boss.blogs.nytimes.com/2010/10/11/this-week-in-small-business-bankruptcies-waivers-and-ipads/?src=busln

The Small Business Administration's surprising decision this month to suspend tech vendor GTSI points out why federal contracting privileges granted to small businesses — and especially Alaska native corporations (ANC) — need to be overhauled.

An investigative report by The Washington Post this month alleges that technology vendor GTSI used an ANC and another small business as fronts to win no-bid contracts intended for small businesses. GTSI, with more than $762 million in revenue last year, is no small business.

Small business advocates say such abuse is frequent. The volume of ANC contracting alone is far beyond what officials have been able to police.

However well-intentioned Congress was in passing the ANC legislation in the 1980s and '90s, it's now clear that endowing them with unrivaled contracting privileges has created a monster.

The government grants 8(a) contracting privileges to small disadvantaged businesses, allowing them to receive no-bid contracts. But ANCs' privileges do not disappear once the firm grows beyond a certain size. No matter how big they get, they can continue to operate as a small and disadvantaged business; and they can set up multiple subsidiaries that also get 8(a) status.

The predictable result is that overworked, understaffed acquisition officers use ANCs as a convenient mechanism to bypass the regular procurement process. From 2000 to 2008, ANC contract awards grew six times faster than other federal contracting in that period. ANCs now are among the government's biggest vendors, receiving annual contracts valued in the hundreds of millions and even billions of dollars.

Other companies have seen that they can get in on this action by working closely with ANCs as subcontractors, in some cases providing virtually all of the work besides the overall management of the contract. With ANCs as front companies, big firms can skirt procurement rules requiring competitive bidding and all its related costs and delays.

That's what GTSI is reported by the Post to have done with EG Solutions, a subsidiary of the ANC Eyaktek, as well as with a non-ANC small business called MultiMaxArray. The SBA suspended GTSI based on concerns surrounding the company's relationship with MultiMaxArray, a vendor on the Homeland Security Department's small business set-aside contract, FirstSource.

The entire small business contracting program must be overhauled, and all these businesses — including ANCs — should be treated alike. SBA's rules defining small businesses are exceedingly complex, varying from industry to industry, inviting confusion. These definitions should be simplified. Privileges should expire when a business grows beyond a given size. No-bid contracts should be capped at a dollar amount that is proportional to the annual revenue that defines a business as being small, reflecting the fact they are intended for small companies.

Sen. Claire McCaskill, D-Mo., Congress' loudest critic of ANCs, vows to offer a reform bill to trim ANC privileges. All lawmakers who truly stand for responsible federal spending, regardless of party, should join — and expand — that effort to cover all special set-asides that are subject to abuse.

Source:  http://www.federaltimes.com/article/20101010/ADOP05/10100304/

In 1999, GTSI, a Top 50 government contractor reported that it was no longer a small business for the purposes of government contracting. Yet from fiscal year (FY) 2004 to FY 2010, GTSI received more than $1.18 billion in federal small business contracts. Data from the Federal Procurement Data System – Next Generation (FPDS-NG) indicates that GTSI received as much as $268 million a year in small business contracts over the 7-year period.

The company’s 1999 annual report to the Securities and Exchange Commission (SEC) stated, “As a result of the acquisition of the BTG Division in February 1998, GTSI no longer qualifies as a small business for contract awards after February, 1998.” The company reiterated that statement in its 2000 report.

On October 1, the Small Business Administration (SBA) suspended GTSI from federal contracting programs. The suspension came as the result of government allegations that the company inappropriately gained access to contracts set aside for small businesses.

Section 16(d) of the Small Business Act, prescribes penalties of up to $500,000 and up to 10 years in prison for firms that misrepresent themselves as small businesses in order to illegally receive federal small business contracts.

Since 2003, more than a dozen federal investigations have uncovered billions of dollars a year in federal small business contracts flowing into the hands of corporate giants around the world. The most recent information released by the Obama Administration indicates that of the top 100 recipients of federal small business contracts, 65 percent of the dollars actually went to large businesses.

Large businesses included in the Obama Administration’s small business data include: Lockheed Martin, Boeing, British Aerospace (BAE), Rolls-Royce, Raytheon, Dell Computer, and General Electric.

In Report 5-15, the SBA’s Office of Inspector General referred to the diversion of federal small business contracts to corporate giants as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.”

“This is a serious federal crime that carries a penalty of up to 10 years in prison. The fact that the SBA waited almost 12 years to suspend GTSI after they admitted that they were not a small business, is proof they are assisting these large firms in high-jacking small business contracts. It is time for the Justice Department to step in and take over the investigation from the SBA,” ASBL President Lloyd Chapman said.

Chris Gunn is Communications Director at the American Small Business League. The views in this guest editorial are the author's own.

As Maine's nonpartisan online news source, we welcome your views. Send your guest editorials to Editor@Exceptionmag.com.

Source:  http://exceptionmag.com/business/taking-change/0001965/gtsi-kept-winning-federal-small-business-contracts-even-though-it