SBA lifts suspension of technology contractor

The Small Business Administration has reached an agreement with recently suspended technology contractor GTSI Corp. that will allow the systems integrator to resume most of its business with the federal government during an ongoing investigation, subject to strict oversight.

According to the pact announced Tuesday, GTSI will once again be eligible to compete for non-small business contracts. The Herndon, Va., company will remain temporarily barred from SBA’s mentor-protege program, joint ventures with small firms and circumstances where it serves as a subcontractor to a small business.

The agreement lifts SBA’s Oct. 1 temporary suspension of GTSI amid allegations the company manipulated small business set-aside rules to inappropriately win government work. The deal is contingent on GTSI’s cooperation with the SBA inspector general’s ongoing investigation of those allegations, and will remain in effect for a maximum of three years. It will end earlier if the IG completes the probe sooner, or if SBA proposes debarring GTSI.

The company also must adhere to several oversight requirements. For example, an independent, SBA-approved monitor will track GTSI’s business practices and ensure it is fulfilling the requirements of the agreement. GTSI also must institute SBA-approved ethics and contracting rules training.

“The lifting of the suspension gives GTSI, its vendors and clients the ability to move forward,” John Toups, chairman of the contractor’s board of directors, said in a statement. “The cloud of uncertainty that was hanging over our employees, creditors, shareholders and partners has been removed, and we can get back to the business of serving our government clients.”

Toups noted the company — which has about 525 employees and ranked 106 on Government Executive‘s list of top 200 contractors for fiscal 2009, with nearly $540 million in prime contract awards — in recent years has earned less than 15 percent of its annual revenue from working with small businesses serving as prime contractors.

The agreement with the government did take a toll on the contractor’s leadership team. It required GTSI’s chief executive officer and general counsel to step down; several other high-ranking company officials will be suspended while the pact is in effect.

– by Amelia Gruber – – October 19, 2010

Labor law violators raking in federal contracts

At least 15 federal contractors have been cited in the past five years for failing to follow wage, health and safety, or collective bargaining laws, according to a new report from the Government Accountability Office.

Investigators found that the government paid more than $6 billion in fiscal 2009 to firms that have a history of labor law violations.

In addition to health and wage violations, seven of the 15 were cited for hiring undocumented workers, breaching environmental standards, fraudulently billing Medicare and Medicaid, and billing for services not rendered. None of the firms has been suspended or debarred, the watchdog said.

Most of these companies had contracts with the Defense Department. The firms also contracted with the Agriculture, Homeland Security and Justice departments, the General Services Administration and NASA. GAO did not name the firms or attempt to determine whether they should have been ineligible for contract opportunities. The watchdog also did not offer any recommendations. But the report — which Reps. Robert Andrews, D-N.J., and Patrick Murphy, D-Pa., requested — could have significant repercussions for the Obama administration’s potential High Road contracting plan.

The proposal, which Vice President Joe Biden’s Middle-Class Task Force has been considering since the summer of 2009, would provide contractors that pay their employees higher wages and benefits a leg up when bidding for federal work.

Andrews and Murphy in February asked GAO to study whether certain “unscrupulous” firms with documented labor, safety and health or wage violations were receiving federal contracts. The request letter indirectly referenced the proposed High Road policy.

“Too often, taxpayers are essentially charged twice for the cost of a federal contract: once for the cost of the project and again when the poorly paid employees qualify for federal assistance, like Medicaid and food stamps,” Murphy said in a statement to Government Executive on Monday. “Some companies that continue to receive lucrative government contracts not only pay rock-bottom wages but [also] have long histories of labor and workplace safety violations. This report makes clear that we have a lot of work to do to ensure that the federal contracting process encourages safe and good paying jobs.”

In the face of fierce opposition from Senate Republicans and others who argue the plan would make the procurement system more costly and inefficient, the administration has yet to implement the High Road policy. In a letter to GOP lawmakers last month, Small Business Administration Administrator Karen Mills wrote, “there has been no decision in favor of ‘High Road’ contracting.”

Some have suggested if GAO put a price tag on contracting with companies that pay their employees low salaries and few benefits, then it could provide cover for administration officials to introduce High Road.

Andrews and Murphy told GAO they wanted to “quantify the taxpayer burden associated with a certain company if they pay so little that workers and their families qualify for federal safety-net benefits.” The report, however, did not attempt to calculate those costs.

GAO also did not tackle the lawmakers’ request to connect the dots between contractors with documented labor violations and cost overruns. Gregory Kutz, GAO’s managing director of forensic audits and special investigations, said some of data the congressmen requested was not available, or had limited relevance to the report.

The report, however, did attempt to quantify the number of companies with at least $100,000 in contracts in fiscal 2009 that were caught violating labor laws. The cases were limited to those that have been settled or adjudicated.

For example, GAO examined the 50 largest monetary penalty assessments the Labor Department’s wage and hour division issued between fiscal 2005 and fiscal 2009. Investigators found half the assessments were made against federal contractors that owed their workers more than $80 million in back wages.

In another instance, Labor cited a food supplier with $500 million in contracts in fiscal 2009 for wrongfully firing employees who took family medical leave, including caring for a hospitalized spouse, the report said. In 2009, a federal jury determined the company was in violation of the 1938 Fair Labor Standards Act for failing to properly pay about 3,000 workers $250,000.

The government’s record of contracting with firms with clean safety regulations also raises some questions. Eight of the 50 largest fines the Occupational Safety and Health Administration issued during the past five years for violations were against contractors. The seven firms — one company had two large fines — had a combined $3.7 million in OSHA fines.

OSHA cited a federal contractor that sells automotive and industrial batteries for 85 health and safety violations — including 13 repeat violations — since fiscal 2005 and assessed $428,000 in fines. In one instance, an employee was killed when his arm got caught while he was attempting to manually clear a jammed conveyor belt. OSHA records cited the company’s lack of machinery safety devices as a factor in his death.

Investigators noted some data limitations. For instance, GAO was not able to determine the total number of firms that had violated collective bargaining laws because those companies are not subject to fines by the National Labor Relations Board.


— by Robert Brodsky – – October 4, 2010

Alaska-connected GTSI cut off from new federal contracts

Federal officials on Friday suspended one of the nation’s largest government contractors from receiving new work, alleging that the Northern Virginia company inappropriately went through other firms to gain access to contracts set aside for small companies.

The U.S. Small Business Administration’s action imperils hundreds of millions of dollars in revenue for GTSI Corp., a top-50 contractor that has relied on the Pentagon and the rest of the federal government for more than 90 percent of its sales in recent years.

At issue is work GTSI did as a subcontractor for small businesses serving as the prime contractors on government contracts.

“There is evidence that GTSI’s prime contractors had little to no involvement in the performance of contracts, in direct contravention of all applicable laws and regulations regarding the award of small business contracts,” an SBA official wrote in a letter to GTSI’s chief executive, 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 an “open letter” to employees, customers, partners and investors Friday night, Friedlander said, “Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter.” He said that the company looks forward “to providing you with a report on our activities as the situation warrants” and that “we appreciate your support during this time.” He added: “Please be assured that we will fight to restore our good name.”

The temporary suspension is one of the strongest contracting enforcement steps taken by the government in recent memory. GTSI can challenge the action, which could lead to a longer-lasting ban from government work, contracting specialists said.

“It’s the first time in decades that the government has completely suspended a significant player, a legitimate top-tier contractor,” said Steven Schooner, a contracting law professor at George Washington University. “It puts everybody on notice.”

The move follows an internal SBA examination of GTSI activity over the past few years. It comes after a Washington Post investigation that detailed the relationship between GTSI and three small businesses, two of them entities known as Alaska native corporations.

The Post story cited an internal GTSI e-mail in which a company vice president said one of its small-business partners was “very open to the concept of GTSI doing ALL the work” on a contract. Another document cited in the story called for GTSI to receive 99.5 percent of the revenue, even though it was a subcontractor to a small business.

The SBA suspension is based in part on those documents and The Post’s findings, officials said.

“The Small Business Administration has no tolerance for fraud, waste and abuse in any of our programs,” said SBA Administrator Karen G. Mills in a statement. “This action is based on information the agency has compiled regarding GTSI’s business practices.”

Among other allegations, the SBA said that GTSI used e-mail addresses of small businesses “so that employees of GTSI could appear to be employees” of those companies while doing government work.

Behind the SBA’s inquiry are long-simmering suspicions that large businesses have been able to gain access to billions in deals that were meant to provide a boost to the nation’s small companies. Officials have worried that increasingly large contracts awarded in recent years through small-business programs – oftentimes without competition – are paradoxically crowding out actual small businesses from federal work.

The Pentagon and a wide array of federal agencies have used such deals because they save time and enable the agencies to meet government policy targets for small-business contracts.

GTSI was founded in 1983. Operating in Herndon, it has experienced substantial growth largely as a result of federal contracts. It reported revenue of $762 million last year from the sale of a variety of information technology products and a variety of services. The company said it had 615 employees, according to its most recent annual report.

GTSI was ranked 49th on trade magazine Washington Technology’s list of Top 100 government contractors last year.

Despite its growth, GTSI has for years maintained a small-business status on some older contracts under federal rules. But the company anticipated losing direct access to set-aside deals as a consequence of its growth. Several years ago, the company disclosed a plan to “mitigate any potential adverse affect on our sales from the loss of our small business status” by developing “strategic relationships with small businesses that benefit from the small business benefits,” according to a filing with the SEC.

One relationship was with EyakTek, an Alaska native corporation. EyakTek’s parent, Eyak Corp., and GTSI founded the company in 2002. Eyak received 51 percent ownership, while GTSI received 37 percent. As an Alaska native corporation, EyakTek has special contracting privileges, including the right to receive contracts of any size without competition.

In 2006, EyakTek and GTSI formed another subsidiary called EG Solutions, which was among 11 companies chosen to provide equipment and services to the Department of Homeland Security through a $3 billion contracting program called First Source. GTSI also worked as a subcontractor for MultimaxArray FirstSource, another small business in the program. The department First Source’s contracts are cited in the SBA notice of suspension letter.

By Robert O’Harrow Jr. – Washington Post – October 2, 2010

White House boosts effort to keep fake products out of procurement

The White House has created an interagency working group to stop counterfeit goods from entering the supply chains that support Defense Department weapons systems and private sector electronic goods, the nation’s first intellectual property czar said on Tuesday.

“The implications of DoD procuring counterfeit goods are negative and obvious,” said Victoria Espinel, the U.S. intellectual property enforcement coordinator at the Office of Management and Budget. “Our understanding is that this is a problem that a number of our agencies are struggling with.”

Espinel made her comments at an event hosted by the nonpartisan Information Technology and Innovation Foundation, before the start of a panel discussion on strengthening enforcement of IP rights in countries that systematically extort intellectual property. Congress created the IP coordinator position in 2008, to respond to concerns that government agencies responsible for protecting intellectual property were not coordinating.

This summer, the White House issued a joint strategic plan to combat IP theft that called for establishing a governmentwide working group to study how to reduce the risk of agencies procuring counterfeit parts. The framework stated the task force should include representatives from the National Security Council, Defense, NASA, General Services Administration, Commerce Department, Small Business Administration and Homeland Security Department.

A January 2010 Commerce survey found that nearly 40 percent of entities across the procurement supply chain discovered counterfeit electronics between 2005 and 2008. The semiconductor industry has aired concerns that counterfeit chips mislabeled as military-grade can lead to fatal malfunction in military and aerospace parts, according to the White House’s strategic plan.

On Tuesday, Espinel observed the IP problem is one issue where there is consensus in Congress. “I feel very lucky to be working in an area where there is great bipartisan support,” she said. Democratic Sens. Tom Carper of Delaware and Sherrod Brown of Ohio in an Aug. 6 letter to Ashton B. Carter, undersecretary of Defense for acquisition, technology and logistics, expressed fear about the potential for counterfeit parts to delay military missions and seriously affect the integrity of weapons systems.

The senators’ letter referenced the Commerce study and a March Government Accountability Office report that found Defense did not have specific procedures for detecting and preventing counterfeit parts from infiltrating the supply chain.

China, the country most frequently identified as the source of counterfeit items, should be treated with “a carrot-and-stick approach,” Espinel said. “China is both an economically sensitive issue and a political sensitive issue.”

— by Aliya Sternstein – 09/28/10 – – © 2010  NATIONAL JOURNAL GROUP, INC., ALL RIGHTS RESERVED