Changes for FirstSource?

The Homeland Security Department may be considering some changes to FirstSource, its indefinite delivery, indefinite quantity small business contract for purchasing of commodity IT goods.

The contracting vehicle, which complements the Enterprise Acquisition Gateway for Leading Edge Solutions (EAGLE) contract for acquiring IT services solutions, was awarded to 11 businesses in February 2007 and is worth up to $3 billion if all options are exercised. So far, FirstSource has more than $380 million in pending and awarded orders.

Despite all the money funneling through, the contract has had its fair share of critics, largely due to the inclusion of joint ventures. Small businesses with fewer than 150 employees were eligible to bid FirstSource, but under the rules of the Small Business Administration's 8(a) Mentor-Protégé program, a joint venture between a small business (the protégé) and a large company (the mentor) qualifies as a small business as long as the protégé firm meets the size requirements. In theory, the program was developed to provide small businesses with guidance and direction, encouraging small-business growth.

Three joint ventures were awarded FirstSource contracts:

-- EG Solutions, a joint venture between Alaska-based Eyak Technology (fewer than 150 employees) and Chantilly, Va.-based GTSI (700 employees, and 2007 revenue of about $850 million)

-- ST Net Apptis, a joint venture between Gaithersburg, Md.-based St Net Inc. (about 20 employees) and Chantilly, Va.-based Apptis (1,500 employees and 2006 revenue of about $700 million)

-- MultimaxArray, a joint venture between Greenbelt, Md.-based Array Information Technology (fewer than 150 employees) and Herndon, Va.-based Multimax (more than 1,000 employees)

In June 2007, Multimax was acquired by Harris, who reported $4.2 billion in revenue in 2007.

A source close to the contract that asked to not be named said that the presence of those three joint ventures has left a bad taste in the mouths not only of their competing small businesses, but also DHS contracting officers, driving a decision to reevaluate the contract and consider some restructuring.

Why? Multiple sources on the contract claim that the protégé companies are doing little to none of the work under FirstSource, while their mentor counterparts provide the bulk of fulfillment and claim the majority of dollars.

It’s true that in many cases, contracts awarded under FirstSource are awarded directly to the large business. This is technically in violation of the rules, as the joint venture company holds the contract, not the mentor company alone. In January, for example, Nampa, Idaho-based MPC Computers, a wholly-owned subsidiary of MPC Corporation, announced that it will team up with “prime contractor Apptis” to fulfill a multi-year contract to supply desktop and notebook PCs to the U.S. Coast Guard, under DHS’ FirstSource contract. There was no mention of St Net or even St Net Apptis.

Regardless of whether or not joint ventures keep in the spirit of the small business program, a lot of speculation is swirling about what DHS may or may not do to adjust FirstSource requirements. A DHS representative said that, at this time, there are no plans to re-compete FirstSource and provided no other information.

SBA, on the other hand, all but verified changes, stating in an email that "there is nothing that requires DHS to exercise a contract option,” once the current contract expires in February 2009, and that “the new contract we are told will still be set-aside for small business with ‘expanded’ small business categories.”

While vague, mention of a new contract with different small business standards certainly supports claims that a change may be in the works. SBA directed all further inquiries to DHS, who remains mum.

Read more about concerns associated with joint ventures at GovernmentVAR.