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.
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.
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.
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.
prime contractor then lists the full percentage of products bought through such
sham pass-throughs as qualifying as subcontracting to small business.
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
does the Defense Department program, traditionally known as the Comprehensive
Subcontracting Plan Test Program, come in?
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
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.
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.
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.
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