By Joseph F. Kovar
December 8, 2006
The American Small Business League declared a victory for small solution providers in its long-running battle with the Small Business Administration over what exactly constitutes a small business.
However, the battle over whether larger government solution providers such as Chantilly, Va.-based GTSI are illegally classifying themselves as small businesses in order to get a large chunk of government purchases set aside for small businesses is far from over.
For Lloyd Chapman, president of the American Small Business League (ASBL), a small-business activist and former solution provider, the case is simple. He said companies such as GTSI are defrauding the government and harming solution providers that are small businesses.
However, GTSI claims it is a small business under government rules, and the SBA has yet to take any action against the company.
This week, Chapman and the ASBL claimed a victory by getting the SBA to formally admit that the company it earlier this year recommended for debarment from future small-business contracts was indeed GTSI. The ASBL had filed a suit under the Freedom of Information Act to get the name of the company.
Eric Benderson, an attorney with the SBA, sent an e-mail to the ASBL saying: "Pursuant to our settlement of the litigation brought by the American Small Business League, I am informing you that GTSI was the subject of IG [SBA Inspector General] investigation regarding its size self-certification that was the subject of the suit. This disclosure is permitted now that the administrative action has been resolved."
Chapman said he has never seen the SBA recommend a company for debarment before. "For the SBA to recommend GTSI for debarment, a company that is a major Federal supplier, the evidence must have been irrefutable," he said.
However, Chapman said he is not optimistic about further action against GTSI. "My impression is that the government will not take any punitive action against GTSI, and won't even debar them," he said.
He could be right. In response to a CRN query, the SBA e-mailed a statement explaining that the GTSI case involved a 2001 Navy contract for IT hardware and that there was some question as to whether the contract was classified as a small business set-aside or not.
The SBA Inspector General reviewed the case and asked the SBA to examine GTSI to determine if it was a small business. The SBA ruled GTSI was not a small business, and GTSI appealed the ruling to the SBA Office of Hearings and Appeals, which upheld the ruling, the statement said.
"Based on that decision, the SBA Inspector General prepared a recommendation that the SBA permanently debar the company [GTSI] from further federal procurement on the grounds that it had falsely misrepresented itself as a small business to secure the Navy contract," the statement said.
However, the SBA's Office of General Counsel reviewed the recommendation and concluded it did not have the authority to disbar GTSI since the contract actually was not a small-business contract, the SBA said in the statement. The matter was referred to the Department of Defense, which then referred it to the Army, which issued a "no further action" letter. Whether or not GTSI is a small business depends on how the SBA classifies it. The company currently has about 730 employees, down from a high of about 940 employees, a number that fluctuates according to open contracts, a GTSI spokesperson told CRN.
Chapman said that GTSI in 2002 certified itself on the government's ProNet listing as a reseller of IT products, and according to the SBA a small business in the IT reseller space includes companies of up 500 employees. However, said Chapman, in that listing, GTSI also calls itself a 100-percent manufacturer, which could have up to 1,000 employees and still be a small business under SBA rules.
"In 2002, GTSI recertified itself as a small business by claiming to be a manufacturer," Chapman said. "The SBA and the Pentagon let them get away with that. Then, two or three years ago, it claimed it was a telecom company."
A telecom company can be considered a small business with up to 1,500 people, according to the SBA.
The GTSI spokesperson said having multiple classifications is very common in the industry, and which classification is in force in a particular case depends on which government agency is doing the purchasing for a specific contract.
The spokesperson said that GTSI is indeed a manufacturer. The company does light manufacturing of classified equipment for communications and satellite work in a 140,000-square-foot facility.
Chapman, who has been fighting to open government contracts to more small businesses, which he said are the backbone of the U.S. economy, said that despite the SBA's recommendation to debar GTSI from future contracts, he has little hope that the SBA will do much against what he called are large integrators who misrepresent themselves as small businesses.
"The SBA will not tell the truth," he said. "They will spin that as no problem."
Chapman hopes that the new Congress will take up the issue. "With the new Congress, and with pressure from my organization, the government will be forced to change the way they purchase," he said.
Yet even if the government decides to take action, Chapman said not to expect much. He referenced a case where the Department of Justice investigated Comark Government & Education Services, which was found to have misrepresented its size status on 1996. The government fined Insight Public Sector, which acquired Comark Government & Education Services in 2002, $1 million early this year.
"Insight Public Sector has $50 million to $100 million in small business contracts, but got only a $1 million fine," Chapman said. "Can you imagine if bank robbers paid a 1 percent fine in this country? I'd become a bank robber. That actually would encourage them. If the government doesn't fine and debar GTSI, it shows there are no laws."