Historically, buyers in M&A transactions have discounted the value of a government contractor with significant revenue from small business set-aside contracts, including contracts for service-disabled veteran-owned, 8(a), HubZone, and woman-owned small businesses. Is that still the case in 2021?
Watch the videocast here: https://www.jdsupra.com/legalnews/exit-strategies-for-govcons-with-set-asi-92656/
Three men were charged recently in federal court in Boston with conspiracy to defraud the United States and mail fraud in connection with a scheme to obtain government contracts.
Frank Apicella, 63, of Groveland, Massachusetts; Michael Sforza, 59, of Alpharetta; and James Apicella, 37, of Kingston, New Hampshire, were charged with one count of conspiracy to defraud the United States and one count of mail fraud.
According to the charging document, beginning in 2011 the defendants used Tactical Office Solutions, a company run by James Apicella, to bid for and obtain government contract work that was set aside for Service-Disabled Veteran-Owned Small Businesses and Historically Underutilized Business Zone companies. Although the work was bid by and awarded to Tactical Office Solutions based under these set-aside programs, the work was actually mostly performed by FENS, a company owned and operated by Frank Apicella and Michael Sforza that was not eligible for these contracts.
Continue reading at: Patch.com
More companies will be eligible to compete for federal contracts reserved for small businesses, due to the recent implementation of a 2018 law.
On Jan. 6th 2020, the Small Businesses Administration’s final rule to implement the 2018 Small Business Runway Extension Act took effect, increasing the period of measuring small businesses’ annual revenue from three to five years in the contract evaluation process. This is “going to increase the pool of eligible participants and make a lot more companies eligible to participate for small business set asides,” said Daniel Snyder, director of contract analysis at Bloomberg Government.
The act was signed into law on Dec. 17, 2018. Snyder said there was a delay in implementation because there were “a small fraction” of companies put at a disadvantage by the change, so the agency wanted to figure out how to best mitigate any negative impact. The compromise was to “give small businesses the option to choose either three or five years and then there will be a phase-in period, so companies will be allowed to choose…whichever one puts them at a greater advantage until the phase-out period concludes.” The transition period ends on Jan. 6, 2022.
Continue reading at: Government Executive
One of the most overlooked compliance requirements for set-aside contracts are the limitations on subcontracting. Don’t take my word for it—GAO has noted in several reports that contracting officers generally do not monitor or enforce the requirement that the small business prime contractor must self-perform a certain percentage of the contract. The limitations on subcontracting requirements are critical to the efficacy of the small business programs. Indeed, the goals of the programs are not served if small businesses do not perform contracts reserved explicitly for them. As new SBA rules have taken effect on December 30th, we expect enforcement to be a more significant focus in 2020. As a result, government contractors large and small need to make a New Year’s resolution to adjust or implement compliance strategies to ensure they understand and satisfy the limitations on subcontracting for set-aside projects.
Continue reading at: Piliero Mazza
This week, the Department of Justice (“DOJ”) issued two press releases regarding companies and individuals that agreed to settle False Claims Act cases related to government contracting fraud. United States Attorney Maria Chapa Lopez announced that Sunrise Systems of Brevard, Inc. had agreed to pay the United States $500,000 to resolve allegations that it violated the False Claims Act by submitting claims for government funds in violations of Small Business Administration regulations. According to the settlement agreement, from December 10, 2013, through February 9, 2016, Sunrise partnered with a minority-owned small business, V&R Enterprises of Jacksonville, Inc., but violated the SBA’s labor and work performance requirements in order to access SBA set-aside funds. The government alleged that Sunrise performed nearly all of the work on the joint venture project and received nearly all of the profits, in violation of the law. In another case, Luke Hillier, the majority owner and former Chief Executive Officer of Virginia-based defense contractor ADS, Inc., agreed to pay the United States $20 million to settle allegations that he violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive.
Both cases illustrate that it is critically important that companies both large and small know and understand the rules and regulations governing small business set-aside procurements. This is especially important when it comes to performance of work requirements (limitations on subcontracting), which often require the small business on a set-aside procurement to do a requisite amount of work depending on the type of contract at issue. On a set-aside contract that is restricted for a certain types of small business, it is often illegal for the small business to subcontract out all of the work to a large subcontractor. Further, small businesses cannot be deemed affiliates or too closely affiliated with a large business or they could lose their small business size status. Meaning, if your operations are so intertwined and dependent on a large business that you are essentially just a part of that large business, you could be deemed ineligible for small business set-aside work because you are too affiliated with that large business. The intent of small business set-aside contracts is to truly help bonafide small businesses. As a result, a substantial portion of the work and benefits of a set-aside contract need to go to small businesses. If you need help understanding performance of work requirements, limitations on subcontracting, and the affiliation rules, please reach out to a GTPAC counselor and we would be happy to help.
Press releases:
Jacksonville Contractor Agrees to Pay $500,000 to settle False Claims Act liability
Prior to his retirement, Chuck Schadl, the long-time GTPAC Procurement Counselor and Group Manager of Government Contracting Services at Georgia Tech’s Enterprise Innovation Institute participated as a guest speaker on the Risk GovCon Podcast.
In Part 2 of his two part appearance, which is available for download here, Chuck discusses what prime contractors look for in subcontractors, being procurement ready, resources available to small businesses seeking to do business in the government space, market research, and the limitations on subcontracting rules applicable on small business set-aside contracts. Part 1 of the two part series is available here.
Recently, a member of the Senate Committee on Small Business & Entrepreneurship called for increased small business participation in federal contracts during a hearing on the SBA’s contracting programs. Senator Ben Cardin based his concern on a recent report showing that the number of small businesses with federal contracts was at a 10-year low.
The report found that federal agencies had awarded contracts to 32 percent fewer small businesses in 2018 versus 2009. In contrast, the number of large contractors receiving awards fell only 4% during the same time frame.
The Senator’s take on this report was that, “while contracts are getting bigger and bigger, we are creating an insular club where fewer and fewer businesses successfully compete for government contracts.” He added, “[t]hat’s contrary to what these set-asides and programs are all about, which is encouraging new small businesses that can bring innovation and job growth to our economy and help our nation.”
Sen. Cardin also noted that, while federal agencies are meeting their goal of spending 23 percent of contracts on small businesses, “the data shows that we have a shrinking base of contractors rather than an expanding base of contractors.”
In other words, fewer small businesses are receiving the benefit of those set asides.
Continue reading at: SmallGovCon
United States Attorney Sherri A. Lydon announced on April 23rd, 2019 that Thomas Brock, age 62, of Camden, South Carolina, was sentenced to 51 months in federal prison after pleading guilty to wire fraud.
According to information presented during his guilty plea and sentencing, Brock was involved in a decade-long scheme to defraud the government in the acquisition of military construction contracts. Under programs instituted by the United States Small Business Administration (SBA) and the Department of Veterans Affairs (VA), certain military and federal government contracts are specifically set aside for award to minorities, women, and service veterans. These programs are intended to provide small businesses with an opportunity for growth and experience working through the federal government.
Brock was an executive with Boykin Contracting and used various straw-owners within the company to pose as a female, an African-American, a disabled person, and a veteran in order to qualify for over $160 million dollars’ worth of these government construction contracts. Based on information presented in court, Brock illegally acquired the contracts and siphoned money from the company to support a lavish lifestyle. The scheme fell apart when Brock fraudulently acquired loans to cover the company’s losses and fell behind on the repayments, prompting a civil lawsuit and a criminal investigation.
Continue reading at: https://www.justice.gov/usao-sc/pr/former-company-executive-sentenced-over-four-years-federal-prison-construction-fraud
The SBA Georgia District Office and Atlanta MBDA Business and Advanced Manufacturing Centers will be jointly hosting a half-day event related to the SBA’s 8(a) Business Development Program. The purpose of the event is to foster new 8(a) applicants and to provide instruction to current 8(a) participants on how to maximize the impact of their 8(a) program experience. The event will also provide training on how 8(a) participants can prepare for transitioning out of the program successfully at the end of their program term.
Topics Include:
There is no fee to attend. But seats are limited, so registration is required.
Date: Monday, May 13, 2019
Time: 9:00 a.m. to 12:30 p.m. ET
Location: Georgia Tech Research Institute Conference Center, 250 14th Street NW, Atlanta, GA 30318
Register here: https://www.sba.gov/event/1640787
VMJ Construction, LLC (VMJ) and its owner, Colorado resident Michael T. Vigil, as well as Maryland-based Vigil Contracting, Inc. (Vigil Contracting) and its operations manager, John J. Vigil, have agreed to pay the United States $3.6 million to resolve allegations that they defrauded the Small Business Administration (SBA) 8(a) Business Development Program.
The SBA’s 8(a) Business Development Program for economically and socially disadvantaged small businesses serves dual roles.
It is important that the 8(a) Program is reserved only for companies that actually meet the program’s criteria because misuse of the program deprives legitimate 8(a) Program participants of valuable economic opportunities and undermines the integrity of the program.
There are several rules that businesses in the 8(a) program must abide by.
VMJ was accepted into the 8(a) Program in 2011. Michael T. Vigil, who is Hispanic, was the 91% owner of VMJ, and was the socially and economically disadvantaged individual upon which VMJ based its application to the 8(a) program. John J. Vigil was a 9% owner of VMJ. John J. Vigil was also the operations manager of Vigil Contracting. Vigil Contracting is a 2011 graduate of the 8(a) Program. Since 2011, Vigil Contracting has not been eligible to bid for contracts reserved for 8(a) program participants.
The United States contends that VMJ made false statements to the SBA regarding its eligibility to participate in the 8(a) program. Specifically, VMJ relied almost exclusively upon Vigil Contracting to bid on and complete the work awarded to VMJ under the 8(a) program. VMJ used Vigil Contracting’s bonding, office space, employees, contractors, software, computers, and vehicles. Vigil Contracting employees and contractors, including John J. Vigil, made the high-level business decisions of VMJ and managed the day-to-day operations of VMJ. Michael T. Vigil did not control VMJ, did not set the long-term policy, nor manage the day-to-day management of the business. VMJ knowingly misrepresented these facts to SBA, in both VMJ’s initial application to participate in the 8(a) program and in an annual update to SBA. As a result of the deception, the Army, the Navy, and the Department of Agriculture awarded VMJ several federal government contracts set aside for 8(a) program participants.
“The United States uses these set-aside contracts for a clear reason — to help small businesses owned by economically and socially disadvantaged individuals. This program continues the promise of the American Dream by helping new small businesses get on their feet, and with more businesses on their feet, our markets are healthier and more competitive,” said U.S. Attorney Jason Dunn. “When companies lie about their eligibility to get these contracts, they prevent other deserving small businesses from getting the assistance that Congress intended.”
