Many small business government contractors may have to rethink the way they do business. The Small Business Administration issued a proposed rule at the end of December to implement provisions of the National Defense Authorization Act of 2013. The NDAA, which was signed into law in January 2013, requires several significant modifications to the rules for small business concerns, including changes to the Limitations on Subcontracting Rule (13 C.F.R. 125.6).
The proposed rule suggests a number of changes that would impact small businesses qualifying under one or more of the size or socioeconomic categories for set-aside contracts. These changes would (1) require companies to change how they determine compliance under §125.6, (2) require them to certify compliance in the bidding process, and (3) impose steep monetary penalties for delinquencies.
The Limitations on Subcontracting rule limits the extent to which prime contractors may subcontract obligations to outside entities, say to large companies that would not themselves qualify for a government set-aside. Under the current rule, a cost-based metric controls what prime contractors on set-aside contracts can subcontract to other entities: the prime must incur a certain percentage of the contract costs. For instance, for services contracts, a prime contractor must “perform at least 50 percent of the cost of the contract incurred for personnel with its own employees.” Section 125.6 currently provides different cost-base ratios based upon the type of contract (e.g., services, supplies, construction) and the type of set-aside (e.g., 8(a), SDVOB, HUBZone).
The proposed rule, if implemented, would alter how limitations are calculated, using an income-based, as opposed to a cost-based, metric. Under the proposed rule, prime contractors on set-aside contracts would be required to keep in-house a certain percentage of income—including passive income—paid by the government. For services and supply contracts, no more than fifty percent of the amount paid under the contract could be passed on to subcontractors; for construction no more than eighty-five percent; and for specialty trade, no more than seventy-five percent. (note that these are the same ratios used under the current cost-based metric, but now apply to the income-based metric). There no longer would be a distinction in ratios based upon type of set-aside, however.
An important exception to the rule would exist for “similarly situated entities.” Maintaining the philosophy behind the set-aside program, the proposed rule would allow prime contractors to contract out to companies who also qualify under their set-aside category without that relationship counting towards the income limit. In other words, the entities would be treated the same for purposes of the Limitations on Subcontracting rule. For instance, an SDVOB could subcontract out a services contract to another SDVOB and that contract relationship would not count towards the fifty percent income limit. However, the subcontractor must qualify under the same set-aside category as the prime in order to take advantage of this exception.
Another exception is that the rule would not apply to contracts valued under $150,000.
Closing a former loophole, the revised §125.6 would count all levels of subcontractor relationship, not just to the first prime-sub relationship. So companies could not get around the subcontract limitation through subcontracting out under the subcontractor.
In order to satisfy the new Limitations on Subcontracting rule, companies would need to address the rule in their contract bids for set-aside contracts. They would be required to certify that they can satisfy the rule. They would further be required to identify any similarly situated entities they planned to subcontract with and to what extent (percentage) they planned to subcontract with them. Any post-award changes would need to be presented to the contracting officer.
Unlike in the past, the proposed rule would institute steep penalties for non-compliance with the Limitations on Subcontracting rule. Companies found violating the rule would be subject to fines “the greater of either $500,000 or the dollar amount spent in excess of the permitted levels for subcontracting.”
The SBA’s proposed changes may seem staggering to small businesses that have carefully defined their business relationships to remain compliant under the current cost-based regime. But the changes could ultimately help to ensure the viability of the SBA’s set-aside programs. When small and disadvantaged prime contractors subcontract the bulk of their work to large businesses, they call into question the purpose of the set-aside structure. Those interested in presenting comments on this proposed change may submit their comments through regulations.gov by February 27, 2015.
When it comes to a conviction, or even an arrest, the collateral consequences that are sometimes overlooked by client and counsel can be extremely damaging, especially when dealing with government agencies and programs.
One such set of consequences is unique to contractors who do business with federal or state governments. Because even a plea to a criminal conviction represents a person’s affirmative statement of the underlying facts, that can lead to a proceeding to suspend or debar (that is, prohibit) the contractor from federal or state business. A government agency may issue a notice of suspension or debarment based on the criminal conviction alone, if the statute provides for such a basis of debarment. Moreover, in some circumstances, a government agency may issue a notice of suspension or debarment based on the underlying conduct (which the plea or conviction affirms as true) that poses a risk to the integrity of government contractors. Thus, even if a government contractor facing serious charges and a lengthy trial enters a plea to a less serious charge, that plea may cause the debarment of the government contractor and possibly deal a fatal blow to its business based on the conduct on which it was based.
Another example of an unforeseen consequence is when a person applies for one of the various government programs that are a “privilege” and not a right. The U.S. Customs and Border Protection (CBP) has implemented Trusted Traveler Programs, such as the Global Entry program, which allows expedited clearance for pre-approved, low-risk travelers upon arrival in the United States. There is no right to participate in that program; rather, it is a privilege granted to individuals upon acceptance by the CBP. There is an application process for entry into the program, and, the CBP explicitly warns that applicants may not qualify if they have been convicted of any criminal offense or have pending criminal charges or outstanding warrants. Notably, as with similar statutes or prohibitions, there is no end date for when the CBP will stop considering the criminal conviction. Therefore, the criminal conviction will likely act as a lifetime bar to gaining acceptance into this program and into similar types of programs.
Collateral consequences are increasingly becoming an important area of law due to the fact that the total number of collateral consequences has increased tremendously in recent years. This requires a broad understanding of many areas, which is contrary to the trend in law practice of specialization in niche practice areas. Unfortunately, counsel are often completely unaware of the potential collateral consequences in practice areas outside their scope of practice. With funding provided by a DOJ grant and other sources, the ABA has developed an interactive tool called the National Inventory of the Collateral Consequences of Conviction (available at www.abacollateralconsequences.org), which provides a database of the sanctions and restrictions in each state. This is a useful tool for both counsel and client in understanding the full gamut of collateral consequences resulting from a criminal conviction.
White-collar crime can involve any number of types of fraud against the government or private parties. One that isn’t usually thought about but can result in serious jail time involves conspiracies to obtain government contracts fraudulently by setting up bogus small and minority-owned businesses in order to qualify for government preferences.
In the past few months in the Eastern District of Virginia, several businesspeople have been sentenced to serve time in prison after pleading guilty to their roles in a scheme that improperly won them more than $31 million in government contracts that were intended for small, minority-owned businesses but were diverted fraudulently to other businesses that didn’t qualify.
In June, businessman Joseph Richards was sentenced to 27 months in federal prison after he pleaded guilty to his role in the scheme. He was the first major participant to be sentenced.
Richards and his co-conspirators were gaming the system and abusing the federal program that provides so-called 8(a) set-asides for minority businesses. As outlined in a statement of facts to which Richards stipulated, he and the co-conspirators set up “Company B,” a shell company owned by a woman named Dawn Hamilton, who is of Portuguese descent and thus eligible for the set-aside. However, Hamilton was only a figurehead owner, and “Company A,” run by Richards and other non-minority individuals, actually did the work on the government contracts. Earlier this month, Hamilton was sentenced to four years in federal prison.
For example, the memorandum states: “From 2009 until at least February 2012, when [Hamilton] began to work more frequently for Company B, Richards knew that [Hamilton] nevertheless reported to [co-conspirator Keith Hedman], who controlled Company B notwithstanding [Hamilton’s] “on-paper” Company B ownership. Richards also knew that [Hedman] kept a stamp of [Hamilton’s] signature in [Hedman’s] desk drawer and that [Hedman] repeatedly used the stamp to forge [Hamilton’s] name and signature on various documents, including checks and other documents submitted to the U.S. government.” Hedman, the ringleader of the scheme, was sentenced to six years in prison.
In order to make their scheme work, Richards and his co-conspirators repeatedly created fraudulent documents, including fraudulent leases and false responses to government inquiries about their 8(a) status.
These guilty pleas and sentences are indications that federal prosecutors are capable of going after government contract fraud in a concerted manner. The investigation that landed these guilty pleas, among others, was conducted by a large inter-agency team, including the offices of inspector general of the National Aeronautics and Space Administration, the Small Business Administration, the General Services Administration, the Department of Health and Human Services, and the Defense Criminal Investigative Service, with assistance from the Defense Contract Audit Agency.
The fact that the companies involved actually performed the work satisfactorily for various government agencies is, of course, no defense. It is a basic type of fraud to make false representations to obtain benefits – in this case government contracts – to which one is not entitled by law.
Of course, it’s pretty clear that for every one of these scams that are investigated by authorities and end in guilty pleas, there must be five or ten that are never found out. If the Small Business Administration and other agencies got wind of more of these conspiracies, they could do more to ensure that truly deserving companies received these set-aside contracts.
Federal Criminal (Other)
On June 3, 2011, Senator Patrick Leahy (D-Vt.) and Representative David Price (D-N.C.) re-introduced the Civilian Extraterritorial Jurisdiction Act (CEJA), which aims to extend U.S. criminal jurisdiction in to U.S. citizens working abroad as federal contractors or employees. Leahy and Price introduced similar legislation in the last congressional session. However, that attempt died in committee because of concerns that it would extend to U.S. intelligence workers and cause them to pause before undertaking their crucial missions. The most recent version would “carve out” an exception for intelligence agency contractors.
Since 2000, the Military Extraterritorial Jurisdiction Act has placed U.S. government contractors within the reach of U.S. prosecutors only if they are employed by the Department of Defense. Some observers have argued strongly for a broader criminal jurisdiction, which would include non-DOD contractors as well. They point to a number of crimes committed by U.S. government contractors and employees working abroad. One of these crimes was the shooting of unarmed Iraqi citizens in 2007 by U.S. government contractors for Blackwater. Another was the drugging and gang raping of Jamie Leigh Jones, a young woman from Texas, by her coworkers who were working overseas as a government contractor for Halliburton.
Senator Leahy set forth his expectations for the CEJA in a recent press release:
This bill would . . . provide greater protection to Americans, as it would lead to more accountability for crimes committed by U.S. government contractors and employees against Americans working abroad. . . . Ensuring criminal accountability will also improve our national security and protect Americans overseas. Importantly, in those instances where the local justice system may be less than fair, this explicit jurisdiction will also protect Americans by providing the option of prosecuting them in the United States, rather than leaving them subject to hostile and unpredictable local courts.
We are concerned about this unnecessary expansion of U.S. law abroad. Extraterritorial application of U.S. law should be reserved for only exceptional cases and then only when there is a demonstrated need. Here, there is absolutely no evidence that contractors are committing crimes overseas and not being held accountable for such crimes. Similarly, there is no evidence that such legislation is necessary to protect contractors from overzealous local foreign prosecutors, nor is there evidence that such prosecutors would be prevented from acting if such legislation were enacted.
Federal Criminal (Other)
This is the third of a regular series of posts that summarize and wrap up our latest thoughts that have appeared recently on Ifrah Law’s blogs.
1. Will the Internet Taint a Loughner Verdict?
Is it impossible for accused Tucson shooter Jared Lee Loughner to get a fair trial because jurors will inevitably be looking online for information about the shootings that is inadmissible in court? We think not – and we propose a workable solution to an increasingly common problem.
2. The ‘Delete’ Key Doesn’t Help These Insider-Trading Defendants
These hedge-fund employees evidently thought that hitting the “delete” key and destroying hard drives was all they had to do to conceal their conduct. We explain why that doesn’t work, and we look ahead to the next steps in a major insider-trading probe that has implicated traders at major Wall Street firms.
3. Big Boeing Award, New Rules Won’t End DOD Conflicts of Interest
After a very convoluted process, the Boeing Co. received a $35 billion contract to build refueling tankers for the Air Force. New conflict of interest rules are in place, but we explain why the defense industry and the Pentagon will probably remain cozy.
4. Ifrah Quoted in News Outlets Coast to Coast
The Ifrah Law firm has been quoted last week in news outlets from The Washington Post and ABC News to Associated Press and a number of the country’s daily newspapers. We give a quick summary of those quotes on issues relating to white-collar crime and marketing fraud.
5. With a Veto, N.J. Governor Stays Out of the Game
To many people’s surprise, the governor of New Jersey vetoed a bill that would have permitted online gaming within his state. We explain why he did that and what the next steps are likely to be in state efforts to legalize e-gaming.
6. Are DOJ, SEC Getting Too Cozy?
Sen. Charles Grassley (R-Iowa) has asked the SEC and the Justice Department to explain why they are sharing information about their investigations with the targets of the probes. We look into the inter-agency cooperation and conflicts and we see matters differently than the senator did.
7. The Recession’s Effect on Federal Prison Sentences
Have the recession, and the cost-cutting measures that it necessitated, led to an increase in good-time credits in the federal system in order to save taxpayer dollars? In an article published in the Los Angeles Daily Journal, we say that may be the case, and we endorse that development.
8. FTC Cracks Down on Merchants’ Empty Promises
On March 2, 2011, the FTC took the unusual step of convening a press conference, in person and online, to describe a multi-agency law enforcement initiative aimed at cracking down on misleading “work from home” and other business opportunity offers. We were among the first observers to listen and, the next day, to be in a position to describe what the FTC is up to.
After a decade of delays and embarrassing missteps, on February 24 the Air Force awarded one of the largest contracts in military history, a $35 billion deal to build nearly 200 giant airborne refueling tankers, to the Chicago-based Boeing Company. At one point, the Air Force had awarded the contract to a team composed of Northrop Grumman and EADS North America, a unit of European Aeronautic Defence & Space Co. In 2008, however, the Government Accountability Office upheld Boeing’s protest of the contract and the process began anew.
Part of the drama surrounding the contract occurred when Darleen Druyun, a senior Air Force procurement official, was alleged to have held employment discussions with Boeing while she was still employed at the Air Force and involved in the contract award. Druyun pleaded guilty to corruption and served prison time, as did the then CFO of Boeing. This blatant instance of impropriety spurred calls for reform of the conflict of interest rules for federal procurements. In addition, the recent consolidation within the defense industry, coupled with its explosive growth, often resulted in companies with a broad range of services and affiliates, with the distinct possibility that a conglomerate company could have input into Defense Department decisions that would help award a contract to an affiliate.
Partially in response to those concerns, the Department of Defense issued in late 2010 its final rules regarding organizational conflicts of interest. The department had initially proposed rules that provided a comprehensive approach applying to virtually all of its procurements. The final rules, however, turned out to be significantly narrower than the rules initially proposed.
Most significantly, the new rules are limited to major defense acquisition programs (MDAPs) and pre-MDAPs. An MDAP is an acquisition program that is not a highly sensitive classified program and is either designated by the Secretary of Defense as an MDAP or is estimated to cost at least $300 million for initial research, development, testing, and evaluation or an eventual total cost of at least $1.8 billion. Pre-MDAPs are programs in certain developmental phases that have been identified to have the potential to become a MDAP.
The new rules also mandate that the Department should obtain advice on MDAPs and pre-MDAPs from objective and unbiased sources and that contracting officers should resolve conflicts of interest in a manner that will promote competition and preserve the Department’s access to the expertise and experience of qualified contractors. The rules require that the relevant contracting office consider specific areas of risk, such as common ownership between entities providing management support services to an MDAP or pre-MDAP and an entity competing for that program or awards for development of software to an affiliate of a competing entity.
Although the new rules attempt to limit the potential for organizational conflicts of interest and the basis for bid protests, we don’t anticipate a radical change in the approach of bid protesters. It still remains common practice for federal employees to enter the private sector — and they will continue to seek employment in the industries that they got to know in the public sector. Furthermore, companies will continue to broaden their services by acquiring or expanding into affiliated companies. This combination of facts should continue to contribute to future bid protests concerning alleged conflicts of interest.
Attention: top executives in the healthcare industry. Take heed, or you could be forced to seek employment in a different industry, as three former top executives at Purdue Pharma recently found out.
In May 2007, Purdue Frederick, a subsidiary of Purdue Pharma L.P., pleaded guilty to felony misbranding of its painkiller drug, Oxycontin, as part of a settlement with federal prosecutors. The charges were that, over a five-year period, the company knowingly made misleading claims about the addictive nature of Oxycontin by claiming that it was less prone to abuse than similar drugs because it was a long-acting narcotic. The subsidiary was automatically debarred from receiving any new government contracts, but the parent company signed a non-prosecution agreement and paid $634 million to settle charges against it. It was able to avoid criminal prosecution and thus remain eligible for new government contracts.
Additionally, the U.S. attorney reached a plea deal with the three top executives of Purdue, who all avoided jail time by agreeing to perform community service and to pay substantial penalties. The three executives all pleaded to a criminal misdemeanor, as “responsible corporate officers,” for failing to prevent, detect or correct federal drug violations. Under the responsible corporate officer doctrine, an officer can be held strictly liable for failing to properly exercise authority to detect and prevent the misconduct of his or her subordinates, even if there is no evidence of the officer’s own misconduct. The doctrine creates a duty on an executive to be aware of his subordinates’ activities and to stop any wrongdoing. With this plea agreement, it seemed as if the three executives might have gotten off with a “slap on the wrist.”
However, after the three executives were convicted, the Department of Health and Human Services debarred them for 20 years from involvement in any federally financed health care program. After a number of administrative appeals, the debarment was reduced to 12 years. Still, the executives appealed to the district court and sought to have the debarment vacated or remanded.
However, on Dec. 13, 2010, U.S. District Judge Ellen Segal Huvelle affirmed the 12-year debarment order. The judge noted that the executives’ guilty plea acknowledged that they were “responsible corporate officers” and that they had the “responsibility and authority either to prevent . . . or to promptly correct” the misleading claims regarding Oxycontin.
Obviously, a 12-year debarment from any federally financed health care program for an executive is effectively a death sentence for future employment in the health care industry. This highlights the severe collateral consequences of any criminal conviction for both companies and individuals who participate in federal procurement programs, as well as the need for corporate executives and their attorneys to understand in advance what the potential fallout can be from a criminal proceeding.
According to a recent Wall Street Journal article, the Small Business Administration is now on the hunt to ferret out bad actors that wrongly take advantage of government programs under its direction. The SBA is notorious for sitting on its hands when it comes to enforcing compliance by companies that claim to qualify under its contract programs. Inaction and lack of oversight have been so bad that the head of the House SBA committee considered shutting down the SBA’s HUBZone program. (See our earlier blog post on this situation.)
And suddenly there was movement. The SBA conducted some 1000 on-site visits in fiscal year 2010 to government contractors participating in the HUBZone program. The number of visits is up more than 40% from the year prior and up significantly more from 2008 and earlier, when the SBA rarely conducted any such visits. The purpose of the visits is to ensure that the companies are in fact operating out of designated economically distressed communities – one of the two major requirements of the HUBZone program, which was implemented to promote commerce in such struggling communities.
The SBA’s increased oversight seems to be the result of scrutiny by the House small business committee and the Government Accountability Office. The latter has conducted at least three reviews of the SBA’s HUBZone program since 2007. But the SBA nonetheless seems naive to the extent of problems with the program. Joseph Jordan, the SBA’s associate administrator for government contracting and business development, was quoted by the WSJ as saying: “The vast majority of these firms are well-intentioned and well-behaved, but occasionally you find a bad actor.” Mr. Jordan’s statement stands in contrast to GAO findings. The GAO reported in 2009 that of the companies it examined that were certified by the SBA as HUBZone contractors, an embarrassing number (almost 50%) were unqualified.
Perhaps all this time that the SBA has not acted to vet out bad actors, it has done so out of naivete as opposed to apathy. Regardless – taxpayer dollars should not be squandered by fraudulent contractors. We hope the SBA is not only awake, but aware.
Last month, the U.S. Department of Justice settled a case with a Maryland company that shows, yet again, how common it is for companies to abuse the preference programs that the Small Business Administration runs.
In this case, it was the SBA’s Historically Underutilized Business Zone (HUBZone) program that was the target. Beltsville, Md.-based CSI Engineering and CSI Design Build – along with their president, Debdas Ghosal –agreed to pay the government $200,000 to settle claims that they used false statements to obtain government contracts set aside for HUBZones.
The HUBZone program was established in 1997 to encourage businesses to locate in economically depressed areas. The program provides some priority in government contracts to companies that have their main offices in economically depressed areas and that draw at least 35 percent of their workforce from those designated areas.
But, according to the Justice Department, CSI Design Build falsely told the government that its principal office was located in a designated HUBZone. Actually, CSI Design Build operated as a part of CSI Engineering, which is not located in a HUBZone. Based on its false representations, the company won contracts with the Army, the Department of Labor, the Department of Homeland Security and the Smithsonian Institution.
The CSI companies’ manipulation of the program in order to win lucrative government contracts set aside for HUBZone businesses is representative of historical and widespread problems with the program — and with the SBA’s oversight.
In July 2008, the Government Accountability Office reported that ten D.C.-area companies were improperly certified for the HUBZone program. For example, companies listed phony HUBZone area addresses (including a Starbucks coffee shop!) while operating out of locations not within HUBZones. Regardless of these blatant false claims, these companies were certified by the SBA, which apparently didn’t even do the most basic due diligence. The SBA’s response to the GAO findings was that the problems were unique to the D.C. area.
Rep. Nydia Velazquez (D-N.Y.), chairwoman of the House Small Business Committee, asked the GAO to do a broader study. In March 2009, the GAO testified that out of 36 firms from four different states with eligibility, more than half didn’t actually qualify. The GAO estimated that potentially hundreds or even thousands of companies with HUBZone certification likely shouldn’t have had it.
Velazquez said she would urge the SBA to shut down the program until it could fix the problems. Although that didn’t happen, the GAO has continued its review. Not surprisingly, more problems have surfaced.
In August 2010, the GAO announced findings from an additional investigation. GAO investigators submitted four bogus certification requests to the SBA. Investigators used clearly false business addresses such as that of a public storage facility, a city hall, and even the Alamo. The SBA certified three of the companies even though a simple Internet search would have revealed the obvious falsehoods. The fourth was not certified. But that was because the SBA repeatedly lost documents submitted by the GAO, which decided to withdraw the application.
Is the SBA utterly incompetent? Are there no procedures in place requiring its employees to thoroughly review HUBZone certification requests? This is not an obscure government program. According to Business News Daily, the SBA claimed that $12.4 billion in federal contracts were granted through HUBZone in fiscal year 2009. Fortunately, however, the GAO has brought HUBZone problems to the attention of the Justice Department and Congress. Now, perhaps the SBA too will be more active in monitoring and weeding out bad actors.
The U.S. Small Business Administration has announced a tough settlement with GTSI Corp., one of the nation’s largest government contractors. GTSI, which had been accused of improperly obtaining contracts that are meant for small businesses, avoided a one-year suspension from new work for the federal government. But two of its top executives are stepping down, three others are suspended, and the company has agreed to immediately cease working as a subcontractor to small businesses serving as prime contractors.
The SBA has taken strong action here, both in bringing the charges earlier this month and in forcing this settlement. But it’s actually the SBA’s tough enforcement stance in this case that’s unusual, not the questionable practice itself.
GTSI was accused of getting contracts set aside for small businesses by putting forth smaller companies as supposed prime contractors when GTSI itself actually took the lead role in the work. GTSI, a Beltway giant that received $540 million in federal contract awards in 2009, isn’t exactly what Congress had in mind when it enacted preferences for small businesses.
Anyone who follows government contract awards knows that this type of activity represents business as usual in the contracting game. Our law firm has represented several small businesses owned by service-disabled veterans that have lost lucrative business opportunities to phony “small” or phony “service-disabled” small businesses, so we have seen this practice up close.
Federal programs created to help small and disadvantaged businesses are constantly being abused by companies that aren’t eligible. The use of small businesses as fronts and the setting up of phony service-disabled companies are just two of the many types of finagling that go on. Companies will hold out a woman or minority member as president or CEO, in name only, in order to bid on and win contracts set aside for woman-owned or minority-owned businesses. Other contractors will set up temporary office space in economically depressed areas in order to land contracts set aside for companies headquartered in historically underdeveloped areas.
These maneuvers and others like them fly in the face of the public policies underlying the government’s programs designed to aid small and disadvantaged businesses. They also violate federal laws and regulations that require, for example, financial and operational control by the woman or minority president or CEO who is being described as the company’s leader.
The problem has been that government agencies, including the SBA, simply do not actively seek out or weed out fraud and abuse. Instead, the government relies on industry self-regulation, hoping that other companies will police their competitors and will notify the government through status protests whenever a company wins a government set-aside under false pretenses. (A status protest is a mechanism by which a company that bid on but lost a government set-aside may file a protest with the contracting agency.)
The system worked in this case. The government first learned about GTSI’s actions when a New Mexico-based woman-owned small business, Wildflower International Ltd, protested the Department of Homeland Security’s award in 2008 of a small business set-aside contract to MultiMaxArray, Inc. Wildflower contended that MultiMaxArray was nothing more than a front for GTSI. The government’s investigation followed.
But this type of self-policing rarely works to effectively root out bad actors. When a protest shows that a company is not qualified, the government may cancel the contract, but it seldom takes the next, much tougher, step, which is to suspend or debar the company from bidding on future contracts. As a result, the bad actor simply moves on to new contract opportunities. Some companies even jump from one set-aside opportunity to the next, holding themselves out as woman-owned, then minority-owned, then veteran-owned, and so forth, transforming their status like a chameleon changes colors, pending the next lucrative opportunity.
GTSI is a good example of how a company may maneuver its way through the government contracting process unscathed while repeatedly being called out as a bad actor. According to American Small Business League President Lloyd Chapman, the SBA Office of Inspector General recommended GTSI for debarment more than five years ago for acts similar to those that were alleged this month. Yet the SBA did not act until now –billions of dollars in government contracts later.
After SBA Administrator Karen Mills announced the action against GTSI on October 1, she stated that her agency “has no tolerance for fraud, waste and abuse in any of our programs.” Writing in the Huffington Post, Chapman replied that the SBA “has helped large businesses hijack federal small business contracts every day” that Mills has been in office and said that 60 of the top 100 recipients of federal small business contracts are actually large businesses.
Still, perhaps it’s now a good time to hope that SBA’s action against GTSI signals a new, tougher stance in ridding government set-aside programs of bad actors. Perhaps those set-asides will then be more readily accessible by those they were intended for in the first place.