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 – Gov.Exec.com – 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 – GovExec.com – 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 – NextGov.com – © 2010  NATIONAL JOURNAL GROUP, INC., ALL RIGHTS RESERVED

Congress restores small business contracting parity

The small business contracting parity debate is finally over.

On Monday, President Obama signed legislation that re-establishes equality among each of the small business subcategories that competes for government contracts.

The 2010 Small Business Jobs Act, which also provides tax cuts for undersized firms and creates programs to support private sector lending, makes a technical revision to the 1953 Small Business Act by replacing the word “shall” in the Historically Underutilized Business Zone statute with the word “may.”

The old language in the Small Business Act stated that a procurement officer shall award contracts based on limited competition to HUBZone small businesses. But, the statutes creating the service-disabled veteran-owned small business program and the Small Business Administration’s 8(a) Business Development Program used the word “may” when referring to set-aside contracts.

The Government Accountability Office and the U.S. Court of Federal Claims determined the difference unambiguously established a preference for HUBZone firms.

The Small Business Administration lobbied lawmakers for months to support legislation that would place contractors in the 8(a) and service-disabled veteran-owned small business programs — and the pending women-owned small businesses program — on equal footing with HUBZone companies. HUBZone companies are located in economically depressed neighborhoods.

“This clarification will help federal agencies meet each of the government’s small business contracting goals,” said SBA spokeswoman Hayley Matz.

The agency now will work with the Federal Acquisition Regulatory Council to “put in place, as expeditiously as possible, provisions implementing parity among all of SBA’s contracting and business development programs,” Matz said.

But, some small businesses are worried the new legislation could spell the end of the HUBZone program. “This is going to seal the fate of the HUBZone program,” said Jim Slagle, executive vice president for sales and marketing at Mission Critical Solutions, a Tampa, Fla. HUBZone firm that first challenged the parity statute in court. “They are not going to prioritize HUBZone firms. I don’t know that we will survive this.”

The federal government has not met its goal of awarding 3 percent of all contract dollars to HUBZone small businesses, while it generally exceeds its 5 percent goal for small disadvantaged businesses — a category that includes the 8(a) program.

Sen. Olympia Snowe, R-Maine, and ranking member of the Small Business and Entrepreneurship Committee, sponsored the parity language in the Small Business Jobs Act. Snowe, however, did not vote for the overall legislation because of its cost and questions surrounding the structure of several lending programs.

The jobs act also:

  • Directs SBA to establish a mentor-protégé program to assist small businesses owned by women, service-disabled veterans and those operating in HUBZones. The initiative would be modeled after the 8(a) mentor-protégé program.
  • Requires OMB’s Office of Federal Procurement Policy to establish a governmentwide policy for contract bundling — a process in which several small contracts are consolidated and awarded to one firm, often out of the reach of small businesses. Prior to bundling a contract, procurement officials would be required to conduct market research and to have a senior acquisition official sign off on the decision. The rationale for bundling then would be publicly disclosed.
  • Instructs OFPP to develop guidance that would allow agencies to set aside orders placed against multiple-award contracts exclusively for small businesses. The policy would apply to indefinite delivery-indefinite quantity contracts and task and delivery-order awards.
  • Establishes a pilot program for collaboration and joint ventures involving small business contractors. Under the five-year program, $5 million in federal grants will be awarded to eligible small business teams seeking to compete for larger procurement contracts.
  • Mandates small businesses recertify their size status annually. The law also establishes a governmentwide policy for prosecuting companies that fraudulently disclose themselves to be a small business.

 

The parity controversy was sparked in May 2009 when Mission Critical Solutions, which had lost out on an Army IT contract to an 8(a) minority-owned small business, filed a protest with GAO. The company argued, and GAO agreed, that HUBZone firms were legally at the top of the small business pecking order and the government should have given Mission Critical Solutions the first crack at the contract.

The ruling sparked a fury of activity, with the Office of Management and Budget and Justice Department issuing rare contradictory memos instructing agencies to disregard GAO’s nonbinding decision because it could “significantly limit the discretion” of contracting officers.

In a separate case, the Court of Federal Claims, a body whose rulings are binding, later decided in favor of Mission Critical Solutions. Justice has appealed that decision, although it is unclear how the new legislation will affect that case.

GAO since has ruled in favor of two HUBZone firms that filed similar contract protests. And in August the Court of Federal Claims issued its second ruling on the matter, arguing the Air Force first should have considered DGR Associates Inc., a HUBZone firm, before awarding a contract at Eielson Air Force Base in Alaska to an 8(a) small business.

— By Robert Brodsky – GovExec.com – September 27, 2010

Firm gets new federal contract despite overbilling probe

Ignoring calls to scrutinize troubled contractors, the U.S. military has awarded a portion of a $490 million contract to an American corporation that’s under investigation for possible fraud.

The Army Corps of Engineers awarded the contract to Louis Berger Group, a New Jersey-based company that federal prosecutors have acknowledged is being investigated for allegedly overbilling the U.S. government.

The contract will be shared with Cummins Power Generation and is for providing generators, building power plants and installing high-voltage transmission systems in “conflict and disaster response locations worldwide,” according to a news release posted last week on Louis Berger’s website.

The decision to continue doing business with Louis Berger has fueled criticism that the Obama administration is willing to overlook criminal allegations in its zeal to rebuild Afghanistan and Iraq. Louis Berger is handling some of the most important U.S. projects in Afghanistan, and it and Cummins also have a seven-year contract with the Army to provide emergency power operations and maintenance in Iraq.

Cummins isn’t under scrutiny in the investigation of Louis Berger.

The overbilling allegations arise from a 2006 whistleblower lawsuit that accused Louis Berger of manipulating overhead cost data and overhead rate proposals submitted to the U.S. government and several states, including Massachusetts, Nevada and Virginia, McClatchy reported Sunday.

Two months after the government learned of the employee’s allegations, the U.S. Agency for International Development tapped Louis Berger to oversee another $1.4 billion in reconstruction contracts in Afghanistan.

Court documents reveal that the Justice Department is negotiating a deal that could “aid in preserving the company’s continuing eligibility to participate” in federal contracting in Afghanistan and elsewhere.

Louis Berger officials have declined to respond to questions about the investigation, but they say it shouldn’t taint their work for the government.

A power plant project in Kabul overseen by Louis Berger and another U.S. firm, Black & Veatch, is $40 million over budget and a year behind schedule because of missteps by the American contractors and the U.S. government, according to an audit by the Office of the Special Inspector General for Afghanistan Reconstruction.

The special inspector general’s office questioned the wisdom of building a diesel and heavy fuel plant that the Afghan government may not have the capacity to sustain.

Officials with the Army confirmed the award of the latest contract but didn’t immediately respond to questions about the investigation or the rationale for granting the contract to Louis Berger.

— McClatchy Newspapers – Sept. 20, 2010

Contractors resist US disclosure effort

Defense companies and other major industries are hoping to block disclosure of their own fraudulent or substandard performance in federal contracts, despite a mandate this year by Congress that such potentially embarrassing information be released to the public.

Sensitive to concerns raised by the companies, the White House has delayed enacting the little-known disclosure provision while it studies the issue, officials said.

The controversy highlights the extent to which efforts to make the government more transparent often garner bipartisan support but then stall in the face of powerful interests seeking to limit public disclosure.

The White House, in a statement, acknowledged that “there will be legal and practical issues’’ that have to be addressed before the new law can be implemented.

“But we intend to do that as quickly as possible, in keeping with the administration’s commitment to increasing transparency in government contracting,’’ said Meg Reilly, a spokeswoman for the White House Office of Management and Budget.

At issue is a database that is cur rently kept secret, called the Federal Awardee Performance and Integrity Information System. Companies are required to fill the database with information about their failures on federal contracts, including civil, criminal, and administrative findings against them.

The database was established in 2008 for the private use of government officials who oversee contracts, but was not intended to be made public.

Contractors complain that disclosing all that information could lead to the unfair use of damaging information by watchdog groups, the media, and their rivals.

But Senator Bernard Sanders of Vermont, an independent who managed this summer to win a disclosure provision in a war spending bill that was signed by President Obama, said the public has a right to know when taxpayer dollars are improperly used or criminally misspent.

“We hand out over $500 billion a year to federal contractors, many of which have well-established histories of systemic illegal, fraudulent, and incompetent behavior,’’ Sanders said in a statement. “We cannot let these corporations continue to rip off American taxpayers. I strongly expect that this new public awareness will go a long way toward putting an end to handing out taxpayer-financed contracts to corporations with a history of fraud.’’

The disclosure requirement marks a major victory for government watchdog groups, which have long maintained that billions are lost to fraud or shoddy work. One group, the Project on Government Oversight, identified $12 billion paid in fines by federal contractors between 1995 and 2006, an indication of serious problems with many contracts.

More than a dozen groups, in a letter to congressional committees, hailed the provision “as a major advance in contractor accountability and transparency.’’ The groups have also lauded Sanders, who identifies himself as the only socialist in Congress and often has difficulty getting congressional backing for his proposals.

“This is one area where he has succeeded in forcing open the government,’’ said Danielle Brian, executive director of the Project on Government Oversight. “This is a major achievement.’’

In March, before the measure was passed, Obama supported the concept. “We’ll be able to see, before any new contract is awarded, whether a company plays by the rules, how well they’ve performed in the past,’’ Obama said at the time. “Did they finish the job on time? Did the company provide good value? Did the company blow their budget?’’

Within days of Obama signing the war funding bill, industry groups began urging the administration to exclude some information they contend could be damaging.

For example, they fear that data on criminal or civil proceedings for contract violations or private agreements they reached to avoid being suspended for lack of performance could give their competitors an unfair advantage or spark public pressure to blacklist vendors that should otherwise be qualified bidders.

Companies are required to submit information about civil, criminal, or administrative proceedings connected to a government grant or contract or a finding of liability of more than $5,000. They have to identify each federal contract or grant that was terminated for default and report any agreements reached to avoid a possible suspension or other action for violations.

“There is an incredibly broad category of information being collected,’’ said Peter Eyre, a contract attorney at Crowell Moring, a Washington lobbying firm that represents companies as diverse as Diebold, Oracle, Dow Chemical, and Industrial Defender in Foxborough.

For example, the database is supposed to include information such as a construction company’s workers’ compensation claims, something that may have no relationship to the firm’s ability to complete a contract but could sway the outcome of a government bidding competition, especially if that information is made public.

Others argue contractors should not have to reveal potentially self-incriminating information, such as explanations for alleged contract violations.

“Companies don’t have a Fifth Amendment right against self incrimination,’’ said John Chierichella, a contract attorney at the lobbying firm Sheppard, Mullin, Richter, & Hampton, which represents defense contractor General Dynamics and oil shipping conglomerate United Maritime Group, among other clients. He also said the government has multiple agencies responsible for investigating contractor fraud and abuse. “This is just the government asking contractors to do its job.’’

Alan Chvotkin, executive vice president of the Professional Services Council, a trade association that represents government contractors, believes the database will make “factoids available out of context’’ that could be unfairly used to bar a prospective bidder.

Other powerful industry voices opposed the creation of the database in the first place, including the National Defense Industrial Association, whose president told lawmakers this year that the information required for the database “appears to undermine the fundamental principles of due process.’’

— by Bryan Bender, Boston Globe, August 30, 2010

Small business program vulnerable to fraud, federal auditors say

It’s way too easy to get the Small Business Administration to approve fraudulent applications from companies seeking government contracts, federal auditors say.

Fake applications to a program meant for companies in economically distressed areas — including one from a firm claiming as its address the Alamo in Texas — sailed easily through the SBA’s vetting process after they were submitted by investigators, the Government Accounting Office said in a new report.

Moreover, 29 firms identified previously as wrongly participating in the program were awarded $66 million in federal contracts last year, the report said.

“We saw a lot of fraud in the program,” Matt Valenta, the GAO’s assistant director for Forensic Audits and Special Investigations, said Monday.

SBA officials took issue with that characterization, saying that the agency has implemented new procedures for detecting dishonest applications.

To test the SBA’s anti-fraud measures, Valenta said, his office submitted four fake applications, including one from the company at the Alamo and one at a city hall elsewhere in Texas. It is the third year in a row that the agency has submitted fake applications — and all have been accepted except one, he said, which was lost.

Investigators also took a second look at 29 companies identified in earlier audits as being ineligible for the program. This year’s investigation showed that those companies were still receiving federal contracts, Valenta said.

To qualify for the program, companies must be located in what the government calls a historically underutilized business zone, essentially an economically distressed area.

They must also meet the federal government’s definition of a small business, which varies from industry to industry, and 35% of their employees must live in the zone. Last year, the federal government entered into contracts worth nearly $3 billion with companies participating in the program.

Joseph Jordan, the SBA’s associate administrator of government contracting and business development, said the agency had worked hard to improve its fraud detection since the GAO first identified problems with it in 2008.

At that time, he said, the application process was conducted online, and companies were not required to prove that the information they sent in was true.

Since then, he said, the agency has begun requiring applicants to send paperwork documenting their eligibility. It has also implemented several other measures, including site visits to see if a firm is really located in a distressed area. Jordan said that by the end of this year, officials will have visited 1,000 of the approximately 10,000 companies participating in the program.

The GAO’s report was not fair, he said, because the applications submitted for the bogus companies at the Alamo and elsewhere were “expert forgeries.” He said investigators took a “cheap shot” at the SBA by saying that the 29 companies identified in previous audits were still receiving contracts.

Some of those companies were still eligible for the program, and others had received their new contracts before full investigations had been conducted, Jordan said.

Still, he said, the SBA would continue to work to eliminate fraud and abuse in its programs.

The agency’s fraud problems “are not going to be fixed overnight,” he said. “We’re working hard on this.”

 — By Sharon Bernstein, Los Angeles Times, August 10, 2010, www.latimes.com/business/la-fi-0810-contract-fraud-20100810,0,1601570.story

SC defense contractor pays $1M to resolve dispute

A South Carolina defense contractor has agreed to pay the U.S. government more than $1 million to resolve fraud allegations related to a contract with the Defense Department.

U.S. Attorney Bill Nettles said Wednesday the Defense Department paid nearly $435,000 to Columbia-based FN Manufacturing LLC to mentor minority-owned companies. But the government says FN never provided some of the mentoring and contracted out some of the services, an action that violated the company’s contract.

FN is a subsidiary of FN Herstal of Belgium. The company makes the popular M-16 rifle, which is carried by almost every soldier.

— The Associated Press – August 4, 2010