Small-biz contracting: The nightmares continue

Federal contracting officers looking to do the right thing and award more contracts to small businesses have never had so many opportunities for their good intentions to go awry.

Sure, according to a recent report from the Small Business Administration, federal agencies increased their spending with small businesses year over year for the first time since 2005.

But contracting officers can’t be blamed if they are a bit on edge wondering who exactly is getting all that money. Recent months have brought a string of unsettling reports suggesting that small-business contracting is fraught with fraud and abuse.

The latest cause for jitters came Oct. 1, when the Small Business Administration temporarily suspended GTSI from winning new contracts because of concerns that company officials were involved in a scheme to divert money intended for small businesses into its own coffers.

The alleged scheme is a familiar one in the federal market, sources say. Contracts that are set aside for small businesses generally allow larger firms to serve as subcontractors. But in some cases, the so-called sub ends up doing most of the work — and getting most of the money. The agency might get points for small-business contracting, but small companies don't benefit to the degree intended.

GTSI is under scrutiny at the moment, but it could have been any number of its competitors that got called on the carpet. This kind of wheeling and dealing goes on “every day of the week,” one reader wrote to Federal Computer Week's sister publication, Washington Technology.

“I’m not sure an ‘Everybody-else-is-doing-it’ defense is going to work for GTSI if SBA prevails,” writes Washington Technology Editor-in-Chief Nick Wakeman. “But I do wonder if SBA is kicking off a crackdown, and GTSI was a good first target.’”

That’s just one hazard for federal contracting officers. GTSI’s problems began when Robert O’Harrow Jr. at the Washington Post did a front-page exposé of contracting problems involving Alaska Native Corporations (ANCs).

Under federal law, federal agencies can award a contract of any size to a company owned and managed by members of Alaska’s indigenous tribes. But O’Harrow reported what many people, including federal lawmakers, have suspected all along: ANCs, lacking both size and experience, often end up calling on larger, nonnative contractors.

SBA took action against GTSI just days after O’Harrow’s story appeared.

SBA officials say they are stepping up their oversight and enforcement of contracting fraud, according to Kent Hoover at Portfolio.com.

“It’s about time,” Hoover said. “Government contracting is a swamp that needs to be drained. Too many companies are gaming the system, getting money that should be going to legitimate small businesses.”

But where to begin? It was only two months ago, for example, that the Government Accountability Office reported that SBA had certified a number of fraudulent companies that were, in fact, GAO operatives for another one of its set-aside categories, the Historically Underutilized Business Zone program. “A simple Internet search by SBA could have revealed these as phony applications,” the GAO study states.

And in May, GAO investigators found similar problems with other categories. In one case, a business owner qualified as a small, disadvantaged firm despite owning a $450,000 yacht, a $200,000 Lamborghini and a $2.5 million home. That particular study found that federal agencies awarded $325 million in contracts to such ineligible companies, FCW reported at the time.

But perhaps the GTSI saga, however it turns out, will give would-be shady operators an opportunity to rethink their options.

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

But it’s probably fair to assume that contracting officers won’t be letting down their guard just yet.