Strategic sourcing’s subtle effects on small business

July 29, 2014 by

Do federal strategic sourcing initiatives put price ahead of good business relationships — and hurt both small businesses and the agencies seeking their services in the process?

“The strategic sourcing that Wal-Mart does builds long-term relationships with suppliers,” said Emily Murphy, senior counsel of the House Committee on Small Business. The federal government’s brand of strategic sourcing, however, has become “more about leveraging buying and limiting the number of companies that might be able to compete.”

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Obama renews initiative ordering agencies to more quickly pay small business contractors

July 23, 2014 by

President Obama will renew a federal initiative that requires agencies to quickly pay small business contractors, a July 11 White House statement says.

QuickPay requires agencies to pay small businesses with federal government contracts within 15 days of receiving an invoice, rather than the normal 30-day period, the statement says.

The initiative, which was originally launched in 2011, has saved small businesses more than $1 billion, the White House notes.

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Man sentenced to 42 months in prison for defrauding SBA and IRS of more than $7 million

July 21, 2014 by

Earlier this month, Vernon J. Smith III, age 61, of Edgewater, Maryland, was sentenced to 42 months in prison, followed by three years of supervised release, for conspiring to defraud the United States in connection with schemes to fraudulently seek federal contracts under a Small Business Administration (SBA) program to assist disadvantaged small businesses, and to defraud the IRS.

U.S. District Judge Paul W. Grimm found that the actual loss to the government as a result of Smith’s offenses was $7,033,844, and entered an order requiring Smith to pay that amount in restitution and forfeiture.

“When individuals defraud the government by falsely claiming eligibility for SBA’s 8(a) Business Development Program, the biggest victims are the taxpayers and legitimate small businesses,” said Inspector General Peggy E. Gustafson of the Small Business Administration.

Thomas J Kelly, Special Agent in Charge, IRS Criminal Investigation, Washington D.C. Field Office pointed out that “Americans were victimized twice by the greed of Vernon Smith. Not only did Smith decide not to pay his fair share of federal taxes and ultimately defraud the IRS out of $839,016, his actions also denied legitimate business owners of socially and disadvantaged groups the opportunity to receive government contracts to which they were entitled.  [This] sentencing should put corrupt business owners like Vernon Smith on notice that the government will get to the truth no matter how they may try to conceal their involvement and income.”

Vernon Smith was the president and sole owner of Capitol Contractors since 2002. Capitol Contractors was a Maryland corporation with its headquarters in Capitol Heights, Maryland and later Edgewater, Maryland. Capitol Contractors had provided roofing and construction services, but was largely dormant after 2002.

In 1999, Vernon Smith caused a new roofing and construction company, Platinum One Contracting, Inc. (“Platinum”) to be incorporated in Maryland. Although Vernon Smith installed Anthony Wright, an African-American who was a former roofer and project manager at Capitol Contractors, to be the president and 60% owner, and Smith’s son was vice president and owned the remaining 40% of Platinum, Vernon Smith exercised complete and undisclosed control over Platinum’s business operations. Vernon Smith’s wife, Georgia Smith was in charge of Platinum’s accounting, and acted as the de facto Controller for the company.

Vernon Smith admited that from August 1999 to June 2013, he conspired to defraud the SBA in several ways. For example, Smith directed Wright to submit an application to the SBA for certification in the Section 8(a) program which did not reveal that Vernon Smith exercised control over the company, had previously supervised Wright, owned more than 10% of Capitol Contractors, and was related to an owner of Platinum. From May 2004 through April 2010, Vernon Smith also caused Platinum to submit annual updates to the SBA Section 8(a) program that contained false information, including that the company was controlled by a socially and economically disadvantaged individual, and that no non-disadvantaged member of Platinum’s management received compensation that exceeded that received by Wright. In fact, Vernon Smith controlled the company, and Platinum’s payments to Vernon Smith and other corporate officers far exceeded payments received by Wright for 2004 through 2009. Based on the fraudulent application and annual updates, Platinum One received more than $52 million in contracts from the federal government under the Section 8(a) program, to which it was not entitled. The total loss to the government resulting from Vernon Smith’s illegal conduct, regarding the illicit profit he received by defrauding the SBA, and depriving a legitimate Section 8(a) contractor of such profit, is $6,194,828

Vernon Smith and his wife, Georgia Smith, also transferred millions of dollars from Platinum to bank accounts in their own names, to casinos on their own behalf, to Capitol Contracting and another company owned by Vernon Smith, and to credit card companies to pay for personal expenses that Vernon and Georgia Smith charged to Platinum’s corporate credit cards, including extensive dental work, veterinary visits for personal pets, lavish vacations, a Royal Caribbean cruise, limousine transportation to casinos in Atlantic City, N.J., funeral expenses for a family relative, fencing for their personal residence, among others. Georgia Smith also mischaracterized numerous payments to casinos as subcontractor expenses.

In addition, Vernon and Georgia Smith signed false corporate and personal tax returns for 2005 and 2006. The Smiths knew that the cost of goods sold and payments to contractors reported on the corporate returns were false because almost all of that money was paid to, and for the benefit of, Georgia and Vernon Smith at casinos. They also knew that the income reported on their personal income taxes omitted hundreds of thousands of dollars that Capitol Contractors had paid to, and for their benefit. As a result, the Smith’s owed additional personal income tax to the IRS totaling $264,105, and Capitol Contractors owed an additional $574,911 to the IRS for tax years 2005 and 2006. The total tax loss resulting from Georgia and Vernon Smith’s conspiracy to defraud the IRS is $839,016.

Georgia Smith, age 52, of Edgewater, Maryland, pleaded guilty to conspiring to defraud the United States by filing false tax returns and is scheduled to be sentenced on July 21, 2014 at 11:00 a.m. Anthony Wright, age 42, of Bowie, Maryland, pleaded guilty to his role in the scheme and will be sentenced on September 15, 2014, at 9:30 a.m.

The full DOJ announcement report may be found at:

See April 2, 2014 report of guilty please in this case at:

CEO of fraudulent DBE firm sentenced to 51 months in prison

July 18, 2014 by

Ernest G. Fink, Jr., 68, of Orwigsburg, Pennsylvania, the former Chief Operating Officer and co-owner of Schuylkill Products Inc., was sentenced in federal court in Harrisburg, Pennsylvania, on July 14, 2014 to 51 months’ imprisonment and ordered to pay fines totaling $25,100 for his role in a massive conspiracy to defraud the Disadvantaged Business Enterprise (DBE) program, announced Peter Smith, U.S. Attorney for the Middle District of Pennsylvania. Senior U.S. District Court Judge Sylvia H. Rambo directed that Fink report to prison no later than September 8, 2014.

In handing down the sentence, Judge Rambo stated “DBE fraud is pervasive in the construction industry, and persons so inclined to commit the same kind of fraud need to be aware that they face serious consequences from DBE fraud.”

According to the U.S. Department of Transportation (USDOT), this scheme, which lasted for over 15 years and involved over $136 million in government contracts in Pennsylvania alone, is the largest reported Disadvantaged Business Enterprise (DBE) fraud in the nation’s history.

On August 16, 2010, Fink pleaded guilty to conspiracy. Sentencing was deferred pending the resolution of the case against Joseph W. Nagle, SPI’s former president and co-owner.

In April 2012, after a four-week jury trial, a federal jury found Nagle guilty on 26 charges in the indictment, including conspiracy to defraud the USDOT and to commit wire and mail fraud, seven counts of wire fraud, six counts of mail fraud, conspiracy to commit money laundering and 11 counts of money laundering.

On June 30, 2014, Nagle was sentenced to 84 months’ imprisonment and ordered to pay fines totaling $27,600.

Fink was Vice-President, Chief Operating Officer and co- owner of Schuylkill Products Inc. (SPI) and its wholly-owned subsidiary CDS Engineers Inc. (CDS), until April 2009 when SPI was sold. SPI, based in Cressona, Pennsylvania, manufactured concrete bridge beams used on highway construction projects in Pennsylvania and surrounding states. CDS was SPI’s erection division and installed SPI’s bridge beams as well as other suppliers’ products on highways in Pennsylvania and surrounding states. The conspiracy defrauded USDOT, the Pennsylvania Department of Transportation (PennDOT) and the Southeastern Pennsylvania Transportation Authority (SEPTA) in connection with the federal government’s DBE program.

USDOT provides billions of dollars a year to states and municipalities for the construction and maintenance of highways and mass transit systems on the condition that small businesses, owned and operated by disadvantaged individuals, receive a fair share of these federal funds. In Pennsylvania, PennDOT and SEPTA receive these funds and requires contractors to award a percentage of their subcontracts to eligible DBE’s.

The USDOT Office of Inspector General has cautioned prime contractors and subcontractors not to engage in fraudulent DBE activity and encouraged them to report any suspected DBE fraud by contacting

Fink and his co- conspirators executed the scheme by using a small Connecticut highway construction firm known as Marikina Construction Corporation as a front company to obtain these lucrative government contracts.

Marikina was owned by Romeo P. Cruz of West Haven, Connecticut, a naturalized American citizen born in the Philippines. Marikina was certified by PennDOT and SEPTA as a DBE. Although Marikina received the DBE contracts on paper, all the work was performed by SPI and CDS personnel, and SPI and CDS received all the profits. In exchange for letting SPI and CDS use its name, Marikina was paid a small fixed-fee, set by SPI.

SPI and CDS personnel pretended to be Marikina employees by using Marikina business cards, e-mail addresses, stationery, and signature stamps, as well as using magnetic placards and decals bearing the Marikina logo to cover up SPI and CDS logos on SPI and CDS vehicles.

Earlier this year, three other former executives associated with SPI, CDS and Marikina were sentenced for their roles in the scheme.

Romeo P. Cruz, the former owner of Marikina, was sentenced to 33 months’ imprisonment, must pay $119 million in restitution and serve two years’ supervised release.

Timothy G. Hubler, of Ashland, Pennsylvania, CDS’ former Vice-President in charge of field operations, was sentenced to 33 months’ imprisonment, pay $119 million in restitution and serve two years’ supervised release.

Dennis F. Campbell, of Orwigsburg, Pennsylvania, SPI’s former Vice-President in charge of sales and marketing was sentenced to 24 months’ imprisonment, $119 million in restitution and serve two years’ supervised release.

The investigation was conducted by the FBI, the U.S. Department of Transportation Inspector General’s Office, the U.S. Department of Labor Inspector General’s Office, and the Criminal Investigation Division of the IRS. Senior Litigation Counsel Bruce Brandler handled the prosecution.


See earlier articles about this case at: and at

OFPP to issue contractor past performance guidance this summer

July 17, 2014 by

The Office of Management and Budget wants agencies to have greater transparency into contractors’ past performance before they sign on the dotted line.

Through additional guidance it hopes to help agencies better assess which vendors they should and shouldn’t work with.

White House OMB OFPP seal“We are a couple of weeks from issuing additional guidance that broadens the sources of past performance information,” said Lesley Field, acting administrator of OMB’s Office of Federal Procurement Policy.

This forthcoming guidance aims to provide agencies with timely information about how contractors are doing and will also help new entrants break into the federal contracting market, said Field, during a June 3 event in Washington, D.C. jointly hosted by the Association of Government Accountants and AFFIRM.

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Cities and counties are upbeat about budget prospects

July 16, 2014 by

Government officials are fiscally optimistic. They see improving budgets and increased spending. More than four out of five administrators (86 percent) see their government’s budgets in the second half of 2014 equal to or greater than second half 2013 budgets, according to an exclusive E-survey of readers of Penton magazines Government Product NewsAmerican City & County and Government Procurement.

Cities and Counties Predict Larger Budgets 06.2014

Sure, times are still tough for U.S. cities and counties. Some survey respondents (about 14 percent) say they will spend less on 11 kinds of government functions (such as public transportation and water) in 2014 compared to 2013. But a total of 82 percent of survey respondents will spend more or about the same on those government functions in 2014. About 27 percent will spend more and 55 percent will spend the same in 2014.

Yes, government officials may be more upbeat than they have been in the past, based on the survey results: Almost six out of 10 respondents say they expect to receive the same level or more federal and state funding to their local government in 2015 compared to 2014.

Keep reading the Keating Report mid-year 2014 forecast on government budgets and spending at:   This article appeared in the June edition of Government Product News.   The mid-2014 edition of the Keating Report includes forecasts on government purchases of goods and services and comments from experts. More sections from the mid-2014 edition of the Keating Report, covering state and local government revenue drivers and government constructioncan be found at:

Rules proposed to implement Executive Order on minimum wage in federal contracts

July 10, 2014 by

An Executive Order, signed by President Obama in February, directed the U.S. Department of Labor (DOL) to develop guidelines to increase the minimum wage for federal contractors.   On June 12, the DOL, in conjunction with the White House, released its proposed rule that raises the minimum wage for workers on federal service and construction contracts to $10.10 per hour.

The 181-page proposed rule (found here as published in the Federal Register) would increase wages for nearly 200,000 workers, according to an economic analysis included in the proposal.

The Executive Order applies to new and renegotiated federal contracts starting January 1, 2015.

The proposed rule would apply to all construction contracts covered by the Davis-Bacon Act; service contracts covered by the Service Contract Act; concessions contracts, such as contracts to furnish food and lodging on federal property; and contracts to provide services, such as child care or dry cleaning, in federal buildings.  Tipped employees of government contractors and their subcontractors would also receive a raise under the proposed rule.

The DOL’s Wage and Hour Division will be responsible for enforcing the proposed rule. The proposed rule contains a mechanism for investigations and informal complaint resolution as well as remedies for violations, including the payment of back wages and debarment as well as an anti-retaliation provision to protect whistle blowers or complainants.

July-Sept. federal contracts expected to be more than $63 billion

July 9, 2014 by

Last year’s fourth quarter in federal government contracting is set to be eclipsed by its 2014 successor: The number of regional opportunities remains the same, but with a much higher dollar value.

Deltek anticipates that more than 1,300 regional solicitations — with a combined value of more than $63 billion — will be released in the fourth quarter of fiscal 2014. Last year, 1,375 regional solicitations were released with a combined value of $42.2 billion.

Comparison of FY13 and FY14 Federal Contracting Activity

Like last year, the Mid-Atlantic region has the most robust opportunity pipeline of any region, offering both the highest number of end-of-fiscal-year opportunities and total value: more than 450 solicitations are anticipated, worth $28 billion.

The southeast and south central regions round out the top areas, with $10 billion and $4 billion, respectively.

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See Deltek’s full analysis at:

Revenue-based small business size standards to increase on July 14

July 8, 2014 by

You probably know that the federal government’s definition of a small business is based on either the number of people that a company employs or the amount of revenue it earns annually.  The number-of-employees or the gross-revenue standards are applied to individual North American Industrial Classification System (NAICS) codes.  One or more NAICS codes apply to every business.

Thus, in order to determine whether a company is a small business in the eyes of the government, one must first determine which NAICS code or codes apply to the business, and then see what size standard (employees or revenue) applies to each NAICS code.  If a business has fewer employees or earns less annual revenue (averaged over the past three years) than the standard, then that business can represent itself to the federal government as a small business.  This is an important determination to make since the federal government sets an annual goal of awarding 23 percent of its contract dollars to small businesses.

It’s been more than five years since the Small Business Administration (SBA) updated the revenue size standards for small businesses.  Therefore, as of July 14, 2014, the SBA is adjusting virtually all of its size standards that are based upon revenue, to account for the years of inflation since the last adjustment. 

The forthcoming adjustment affects almost half of all NAICS code categories.    In all,  476  industrial categories will be affected by the update,  including most service, construction, retail, agricultural and transportation industries. 

With these increases, the new small business size standards range between $5.5 million and $38.5 million.

Using the Gross Domestic Product price index to obtain the most comprehensive measure of inflation, the SBA determined that the amount of inflation that occurred between the first quarter of 2008 and the last quarter of 2013 was 8.73 percent.   The SBA then calculated the new size standards by multiplying the current size standards by 1.0873 and then rounding that total to the nearest $500,000.  After these adjustments,

This latest adjustment of the revenue-based size standards for inflation is separate from the comprehensive review of all size standards that the SBA is supposed to perform at least every five years.

The new size standards can be found at:!documentDetail;D=SBA-2014-0009-0001.  Busineeses have until August 11, 2014 to submit any comments on these rules which technically are “interim final rules” at this point.

Because these new size standards will apply to certificates of small business size status signed on or after July 14, 2014, small (and near-small) businesses should review the new size standards to determine whether they now qualify as a small business concern.   Businesses also should visit the System for Award Management (SAM) and verify that their profile and certifications are up to date based on the revised size standards.

See more details on the SBA’s website at:

Businessmen sentenced for bribery in connection with Camp Pendleton contracts

July 7, 2014 by

The presidents of two California contracting firms were sentenced on June 27, 2014 to prison terms after pleading guilty to bribing a federal employee to get construction and service contracts worth millions of dollars at Camp Pendleton.

Hugo Hernandez Alonso, 50, of Chula Vista was sentenced to a year in prison and fined almost $127,000. Bayani Yabut Abueg Jr., 51, of San Diego was sentenced to six months in prison and fined $366,140.

The two admitted to bribing Natividad Lara Cervantes, a civilian employee of the Department of Defense who was the supervisor for construction and service contracts in the inspection branch of the department. Cervantes pleaded guilty in January and is set to be sentenced in July.

The bribes stretch back from 2008 to 2011, with Cervantes receiving thousands of dollars in cash and remodeling work on his San Diego condominium, according to documents filed in San Diego federal court, where the cases were decided.

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Read update on sentencing here: