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Discovery In Sikorsky Case Raises Doubts About Small Business Subcontracting Program

By Professor Charles Tiefer
Forbes
August 15, 2017

A lawsuit by the American Small Business League, heading for trial, is suggesting that a Defense Department program intended to promote small business subcontracting may well be conducted in a deceitful way.

Discovery in the lawsuit ― against the Defense Department and Sikorsky, a major helicopter maker ― has suggested that major defense contractors manipulate data to falsely claim they are meeting their small business subcontracting targets. Over its lifetime, then, the program would fail to provide promised small business subcontracting on hundreds of billions of federal contracting dollars. Small business would lose out on the opportunities that Congress and the public want small business to get.

The ASBL and its president, Lloyd Chapman, seek the program’s records under the Freedom of Information Act. Ahead of the trial, set for December, the ASBL has obtained documents and depositions about Sikorsky’s defense contracting.

The ASBL discovery and other information point to one way contractors can evade their subcontracting obligations.

A prime contractor may commit to the government to meet a goal that, say, 30% of its subcontracting will go to small business. And it may report that it did so in the first half of 2017. But what the contractor actually does may be termed a sham pass-through. The prime contractor picks out some large contractors to which it wishes to subcontract important products for installation in its helicopters, planes or other products for its prime contract. Then the prime contractor gets a small company to agree for some nominal fee (like 1%) to “buy” the product from the large contractor and then turn around, without doing any work, and “sell” the product to the prime contractor. All the small company has to do is sign a contract and some receipts.

The prime contractor then lists the full percentage of products bought through such sham pass-throughs as qualifying as subcontracting to small business.

In fact, the prime contractor can take this one phony step further. The small company chosen as the sham pass-through may qualify as one of the specialized kinds of small business that have special federal assistance programs, like women-owned small business or service-disabled veteran-owned small business. In that case, the prime contractor may have the cheek to count the phony small business subcontracting as compliance with its duties for those special federal assistance programs.

Where does the Defense Department program, traditionally known as the Comprehensive Subcontracting Plan Test Program, come in?

Again, the ASBL discovery and other information suggest the Test Program reduces the specificity and transparency of large contractor reporting of asserted small business subcontracting. This, in turn, emboldens the large contractors to conduct a phony system. For example, much of Sikorsky’s sales to the government are sole source, meaning Sikorsky has no competitors. Sole sourcing means Sikorsky has no legitimate fear that disclosing its small business subcontracting figures for the sole-sourced products would give an advantage to its (non-existent) competitors. Yet Sikorsky has tried to keep its information secret, conveniently veiling its claims about its asserted small-business subcontracting.

Under the program, large contractors need not plan or report on individual contracts; they can just create a vague overall plan for their nationwide contracting. With so little transparency, the small business subcontracting may occur only on a sham basis, if that small business subcontracting occurs at all.

The ASBL has calculated that the Pentagon may have deprived small business of subcontracting on $2 trillion since the program was started in 1989. And unfortunately, under the 2017 National Defense Authorization Act, the program was extended to 2027. This would bring the so-called test, supposedly an experimental program, to its 38th year, which has to be some kind of unfortunate record for a test program.

In a previous round of this case, in November 2014, the trial judge, William Alsup, accused the Pentagon and Sikorsky of trying to “suppress the evidence.” He instructed the Pentagon and Sikorsky on two separate occasions to “highlight the parts that are supposedly confidential” or that they believed were proprietary and to explain why they believed the information should be exempt.

When Judge Alsup ruled for the ASBL, the Ninth Circuit reversed the decision. But it did not end or even stall the case, sending it back to Judge Alsup for discovery and trial. Judge Alsup’s order allowing ASBL to depose Sikorsky and Pentagon witnesses in the case indicates that the case is going forward. So the mask of the program may finally be removed.

For the full article, click here: https://www.forbes.com/sites/charlestiefer/2017/08/15/spuriously-conducted-federal-subcontracting-program-revealed-in-sikorsky-case/2/#2e5f7a754041

 



 
 

 
 

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