SBA Charges GTSI Used Small Businesses as Fronts In a rare punitive action against one of the largest contractors, GTSI Corp. has been suspended from federal contracting for allegedly using small businesses as fronts to obtain set-aside work. “There is evidence that GTSI’s prime contractors had little to no involvement in the performance of contracts, in direct contravention of all applicable laws and regulations regarding the award of small business contracts,” SBA’s suspension and debarment official, Michael A. Chodos, wrote in a letter to the company. “The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors, and with contracts not being performed in accordance with applicable law, regulations and contract terms.” The letter said the conduct amounted to “a lack of business integrity or business honesty.” GTSI said it will fight the charges. In a statement on Oct. 1, CEO Scott Friedlander said SBA handed down the suspension without prior discussion with the company. “Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter,” he wrote. “…Please be assured that we will fight to restore our good name.” The company has the right to challenge the suspension. The company is barred from competing for new federal contracts, but its current contracts are not affected. GTSI was ranked as the 59th largest federal contractor with almost $384 million in 2009, according to Washington Technology magazine, and derived 90% of its revenue from the government. On Oct. 4 GTSI warned investors that the suspension could affect its ability to continue as a going concern, sending its stock into a dive. Among its largest partners is Eyak Corp., an Alaska Native Corporation. The companies formed two subsidiaries, Eyak Technology and EG Solutions, according to the Washington Post. EyakTek was an 8(a) firm and GTSI served as a mentor to EyakTek in SBA’s mentor-protégé program. EyakTek and EG have won about $1 billion in federal contracts, the Post said. Eyak was not named in SBA’s suspension letter. In a bizarre twist, on the day before the suspension GTSI rejected an unsolicited takeover bid by EyakTek. After the suspension EyakTek withdrew the offer. SBA said GTSI employees used email accounts of its small-business partners to conceal its involvement in the contract. According to internal GTSI documents obtained by the Post, a company vice president emailed that one of its small-business partners was “very open to the concept of GTSI doing ALL the work” on a contract. Another document said GTSI would receive 99.5% percent of the revenue from a contract with the Department of Homeland Security, even though it was a subcontractor to a small business. GTSI Ties to Alaska Corps. The suspension follows a series of Post stories on Alaska Native Corporations’ relationships with large companies, including GTSI. The ANCs are allowed to receive sole-source 8(a) contracts in unlimited amounts, and several have been awarded deals worth more than $100 million each. The Post reported that the corporations won $29 billion in federal contracts in the last decade. “Native shareholders have gotten relatively little of the contracting largess,” the Post’s Robert O’Harrow Jr. wrote. EyakTek received $409 million in federal contract revenue in 2009, but returned just $109,000 in dividend payments to its 428 Native shareholders, according to documents obtained by the newspaper. EyakTek donated $266,000 to its foundation, which contributes to Native cultural and educational programs. Federal officials have acknowledged that they turned to ANCs because they offer a quick and easy way to award large contracts without competition. The explosive growth in sole-source awards to ANCs has raised questions in Congress and criticism from other small contractors. The Alaska companies argue that their preferential treatment is justified because they provide benefits to Natives living in poverty. But three large ANCs—Arctic Slope Regional Corp., Doyon Limited and Cook Inlet Region Inc.—broke ranks and proposed restrictions on their contracting preferences. In a letter to SBA and a guest column in the Anchorage Daily News and other Alaska papers, CEOs of the three firms said 8(a) sole-source contracts should be capped at $100 million and ANCs should be required to report how they used their profits to benefit their communities. “[W]e recognize that change to the 8(a) program is inevitable,” the CEOs wrote. “By proposing changes, we become an important part of the process. Without participating in the process, Native 8(a) companies risk losing the right to participate in the program. We cannot let that happen.”