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/

The suspension last week of one of the government's largest vendors can be traced to a controversial 2008 Homeland Security Department contract that sparked a lengthy lawsuit between two leading information technology contractors.

On Friday, the Small Business Administration issued a temporary yearlong suspension from government contracting against GTSI, a systems integrator based in Herndon, Va. The suspension notice claimed the company, which is large by the government's standards, manipulated small business set-aside rules to inappropriately win federal contracts.

The decision to suspend GTSI was extraordinary. The government has rarely moved to suspend a company as large as GTSI, which earned more than $540 million in prime contract awards in fiscal 2009, according to Government Executive's annual top 200 contractor rankings. The closest equivalent in terms of suspension was the Environmental Protection Agency's 2008 suspension of IBM, but that action was reversed in less than a week.

The allegations against GTSI stem from a contract awarded two years ago. In September 2008, a joint venture company known as MultiMaxArray was awarded a $165 million delivery order on Homeland Security's FirstSource information technology contract. FirstSource was a 100 percent small business set-aside contract reserved for companies with fewer than 150 employees.

Days after the award, Wildflower International Ltd., an IT firm that promotes itself as New Mexico's largest woman-owned small business, filed a protest with DHS, arguing MultiMaxArray was not eligible for the contract. Wildflower had submitted an unsuccessful bid for the delivery order.

Among Wildflower's arguments was MultiMaxArray was little more than a front company and most, if not all, the work was to be performed by GTSI, a company that, based on its size, was ineligible for the FirstSource contract. GTSI argued it was only a subcontractor on the delivery order.

Wildflower's accusation was based, in part, on a July 2008 teaming agreement -- which the company obtained -- that spelled out a business relationship on the FirstSource contract between GTSI and Dell Marketing/Dell Federal Systems. GTSI had established a purchasing agreement with Dell and other technology vendors specifically to fulfill the FirstSource delivery order, according to the protest. GTSI was also the subcontractor to at least one other prime contractor on the multivendor contract.

The protest filing said GTSI had "taken control" of MultiMaxArray, which at the time of the delivery order, had ceased to exist due to a merger months earlier with Harris Technical Services Corp., Wildflower said.

"GTSI apparently designs the systems necessary to satisfy a FirstSource delivery order, selects the computer hardware and software configurations, negotiates pricing with the vendors, prepares the MultiMaxArray proposal and then performs all of the necessary services to install, maintain and provide technical support and training for the DHS user," the protest document said.

The protest further claimed that during the kick-off meeting for the contract, several GTSI employees represented the prime contractor to discuss performance of the delivery order. Ultimately, MultiMaxArray decided not to fight the protest and the contract was terminated.

GTSI later filed suit against Wildflower, claiming the teaming agreement was confidential and proprietary. The suit charged Wildflower with misappropriating trade secrets.

After more than 14 months of contentious legal battle, the two parties settled out of court in April. Wildflower Chief Executive Officer Kimberly DeCastro said she was not at liberty to discuss the case. GTSI spokesman Paul Liberty, meanwhile, told Government Executive that SBA's suspension does not validate Wildflower's allegations.

"Prior to learning of the temporary suspension notification on Oct.1, GTSI had not been contacted by the SBA regarding this matter," Liberty said on Wednesday in response to questions about SBA's specific allegations, which cited GTSI's role in the FirstSource delivery contract.

"There is evidence that GTSI's prime contractors had little to no involvement in the performance of the contracts in direct contravention of applicable laws and regulations regarding the award of small business contracts," wrote SBA suspension and debarment official Michael Chodos in a letter to GTSI's President and Chief Executive Officer Scott W. Friedlander. "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."

In the Oct. 1 suspension letter, SBA alleged that GTSI obtained multiple e-mail addresses from MultiMaxArray so that the company would appear to be the entity conducting business with the government. GTSI would then reportedly prepare proposals and send quotes to DHS using the prime contractor's e-mail address, according to allegations. The letter also accused GTSI officials of placing the letterhead of MultiMaxArray on contract invoices to disguise where the documents had originated.

In a message to his employees, customers and investors last week, Friedlander said he would "fight to restore our good name." On Monday, the company posted an update on its website, touting its reputation as a "trusted partner" with the federal government and highlighting its ethics training and "high standards of personal and professional conduct."

The company also warned that the suspension and related investigations could lead to "administrative, civil or criminal liabilities -- including repayments, fines or penalties being imposed on GTSI -- or GTSI's debarment from future U.S. government contracting, any of which could have a material adverse effect on GTSI's going concern status, financial condition and results of operations."

Nearly three-quarters of all GTSI revenue comes from government contracts, according to the firm's 2010 filings with the Securities and Exchange Commission.

This is not the first time GTSI has been in trouble with the government. In June 2005, the SBA inspector general recommended the government permanently debar GTSI for misrepresenting itself as a small business on a Navy IT hardware contract. The information was provided by Lloyd Chapman, president of the American Small Business League, a watchdog group that tracks small business contracts that have been awarded to large firms.

But after reviewing the recommendation, the SBA's Office of General Counsel decided it did not have the authority to debar GTSI since it was not an SBA contract in question, according to a December 2006 statement by the agency. SBA referred the case to the Defense Department, which declined to take action against the firm.

It is unclear why SBA chose not to intervene in a Navy contracting dispute in 2005, but decided to move forward with a suspension on a 2008 DHS contract.

"SBA's suspension and debarment decisions are not based upon any single circumstance or issue," said SBA spokeswoman Hayley Matz. "Each suspension or proposed debarment decision, by necessity, is entirely fact-specific and is based on the information available to the agency at the time. SBA's policy is to vigorously pursue appropriate suspension and debarment actions against parties to contracts with any federal agency (including SBA itself as well as other federal agencies) if the facts and circumstances demonstrate deliberate conduct designed to subvert laws and regulations designed to benefit small businesses."

GTSI has 30 days to challenge the suspension. Liberty said the company "intends to take prompt action to work with SBA to address this situation to allow GTSI to continue serving its federal government customers."

The contractor is facing other problems as well. Word of the suspension sent GTSI's stock price into a tailspin, prompting Eyak Technology LLC, an Alaska native corporation-owned firm, to drop its bid to acquire the Virginia firm.

The SBA IG also is investigating GTSI's actions in regard to its conduct as a subcontractor on other set-aside contracts, including those awarded to ANCs.

Source:  http://www.govexec.com/dailyfed/1010/100610rb1.htm

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