After pressure from small businesses and advocate organizations, the Small Business Administration (SBA) has acknowledged that, in June 2005, its Inspector General recommended GTSI be debarred from government contracting for misrepresenting itself as a small business, according to an e-mail obtained by GovernmentVAR. The admission came amid a lawsuit filed against SBA by the American Small Business League (ASBL) under the Freedom of Information Act.

As stated in the company's 10-k filed in March 2000, GTSI's acquisition of BTG and two of its subsidiaries two years prior meant it no longer qualified as a small business. Nevertheless, GTSI continues to win awards as a federal small business that added up to a reported $1.5 billion between 2002 and 2005 alone.

How is that possible? The Chantilly, Va.-based company lists an average number of 850 employees on the Central Contractor Registration Web site, which is too large to be considered a small-business VAR. But by defining itself as an electronic computer manufacturer and wired telecommunications carrier and reseller, which have thresholds of 1,000 and 1,500 employees, respectively, GTSI was able to certify itself as small.

The SBA Inspector General first recommended "a firm" be debarred from government contracting for misrepresenting its size as a small business in June 2005, but did not release the name of that firm. However, an e-mail sent to the ASBL from SBA chief counsel Eric Benderson this week and obtained by GovernmentVAR stated, "GTSI was the subject of the IG investigation regarding its size self-certification that was the subject of the suit. This disclosure is permitted now that the administrative action has been resolved."

The e-mail came with a request for a notice of dismissal of ASBL's lawsuit against the SBA.

According to the SBA, the specific incident that was investigated involved a Navy contract in 2001 for IT hardware.

"The contract was classified as a small-business set-aside, although there is some question as to whether that classification was proper," an SBA spokesperson says.

But Paul Liberty, area vice president for corporate affairs and investor relations at GTSI, says the contract is within the parameters set by the federal small-business program.

"The contract in question expires in March 2007 and is not subject to review when a company crossed the size standard threshold," he says. "GTSI takes playing by the rules seriously."

The Office of General Counsel concluded it did not have the authority to debar GTSI since it was not an SBA contract. The SBA referred the matter to the Department of Defense, says the SBA spokesperson, which assigned it to the Department of the Army. The Army recently concluded its investigation of the case and issued a "no further action" letter, declining to debar the company from federal procurement.

That's unacceptable to Lloyd Chapman, president of the ASBL, given that false misrepresentation of a firm's size to receive a federal small-business contract is a felony carrying a penalty of up to 10 years in prison, a $500,000 fine and permanent debarment from government contracting.

In a similar case, Insight Public Sector recently settled allegations of misrepresentation as a small business for $1 million and no admission of guilt -- a slap on the wrist as far as Chapman is concerned.

"For the Inspector General to recommend debarment, the evidence must have been irrefutable and overwhelming," he says. "And yet my impression ... is that they don't intend to take any action at all. I'm going to try to go after these firms [that misrepresent themselves] civilly, because clearly we can't rely on the government to prevent this kind of activity."