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By Nick Wakeman

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Nick Wakeman

Why GTSI, and are others in SBA’s crosshairs?

The news that broke late Friday that GTSI Corp. had been suspended from winning future government work was a shocker.

SBA alleges that GTSI was improperly receiving dollars meant for small businesses. In other words, SBA says that GTSI was using small business prime contractors as a front to funnel money to the company.

In the initial rush of reading the Washington Post report and GTSI’s rebuttal, the first reaction is, "Boy, those guys at GTSI must have really screwed up."

But let’s pull back a bit and think about how the market operates. As one person told us in an e-mail – “This is something every agency and company in government does every day of the week.”

I’m not sure an “Everybody-else-is-doing” defense is going to work for GTSI if SBA prevails. But I do wonder if SBA is kicking off a crackdown and GTSI was a good first target.

So will we see more suspensions or is GTSI a sole example? How serious is SBA's allegations? What might happen next?

The timing with GTSI also is odd to me. First, the company is trying to fight off a takeover attempt by Eyak Technologies, a Alaska Native Corporation-owned small business. GTSI also has a 30 percent stake in the company.

Second, Robert O’Harrow of the Washington Post writes a multi-part story on ANCs and one installment focuses on the Eyak’s relationship with GTSI.

Then SBA suspends GTSI the day after O’Harrow’s series ends. He also is the reporter who breaks the story of the suspension and says that his reporting helped SBA make that decision.

That’s a lot of threads coming together in a single week. Is someone after GTSI?

GTSI is a public company and when the market closed Friday it was trading at $7.25. After hours trading this weekend has the stock down to $5.98.

Eyak’s offer for GTSI is $7.50, which was rejected last week. I’m not sure how this suspension affects Eyak’s desire to acquire GTSI. More likely? Less likely? I guess we'll see.

Obviously, we’ll be following this story closely. Not only is GTSI a well-known company, but as our commenter said, “If this stands, there are a couple of hundred other large businesses that face the same dilemma.”

Posted by Nick Wakeman on Oct 03, 2010 at 7:23 PM


Reader Comments

Fri, Nov 12, 2010 Papago Arizona Summit Arizona

Where is the Justice Department?

A federal court case filed which is much worse than this one: Jeffrey C Stone Inc. d/b/a Summit Builders v SDVO Constructors, LP case # 2:10-CV-00317.

This case filed by a billion dollar large business ( Summit Builders ), actually claims the large business is suing a Service Disabled Veteran Owned Small Business for lack of allowing Summit (a large business) to: share profits, manage the project, share bank accounts, authorize all communication between the owner and the large business and so on, all on a small business set-aside awarded to SDVO. SDVO refused to allow this large business become an "Ostensible Subcontractor" and a Contracting Officer on the 12 million dollar project forced this large business to end up in control of the SB set-aside.

YES a Large business files suit against a small business for NOT sharing profits.

Where is the government's inquiry and where is the SBA?

Mind you this is filed in a complaint in Federal Court.

Wed, Oct 20, 2010

Retired contracting executive nailed it. If SBA chooses to finally enforce the rules, it's got to be applied evenly across the board. And since these practices have been running rampant for decades, their going to have to give a runway to allow everyone to prepare. I don't see that happening. Just a little clarity for those that think GTSI and others are "stealing" from small businesses" and what has not been reported... NAICS codes re use to determine the small business size threshold. SBA sets the size standard for NAICS codes. For example, ITES-2H, where GTSI is a small business awardee, has a NACIS code of 17110, Wired Telecommunications Carriers with a small-business threshold of 1,500 employees. Understand that GTSI didn't choose the NAICS code for ITES-2H, the Army did. World Wide Technology was also an ITES-2H small business awardee and, at the time, was a $2B company! Almost 3 times larger than GTSI. Did the Army screw up? I doubt any 20-person VAR can offer the breadth of product or carry the credit facility required to fulfill Army - something that poses unacceptable risk to the Army. If this is unclear, check out the "Code Shopping" article here: http://washingtontechnology.com/articles/2007/03/10/code-shopping.aspx Further, procurements involving VARs typically use a NAICS code where # of employees is the basis because you can't determine the true size of the company based on the price of the products they resell - it's not a proper representation. A VAR might make 1-2% points on a competitive $10M contract - a gross profit of $100-200k. They still have to pay salaries out of that... For services providers and integrators, the playing field is level, as they are competing on billable rates, so revenue is a true indicator of the size of the company - thus different NAICS codes are used for their procurements. Ask an integrator what their take is on a typical competitive $10M cost-plus deal...(hint, the overhead is already taken care of...$100-200k in this instance is net profit!) I don't work at GTSI, but I do work in the industry. I feel bad for them simply because the uneducated and uninformed are rumor mongering. This is truly irresponsible behavior on the part of the SBA, not federal contractors. Of course, the SBA is in a horrible position - they can't appease everyone and therefore small and large businesses, as well as most federal agencies, have equal disdain towards them. Seasoned KO - apply the right NAICS code for your next small business set-aside. Problem solved.

Mon, Oct 11, 2010

I am also amused (see retired CO comments)by this revelation. Rules and regulations (i.e., FAR, etc.) are selectively enforced. The 8(a)s and small businesses are just as culpable. The Government buaracrat is not going to risk of incurring the wrath of a congressman or congresswoman or senator by enforcing Federal procurement regulations and law. The SBA is just as culpable. This is selective prosecution of GTSI. As the CO says, this happens every day of the week. Who is next? Lockheed, ha! SAIC, ha! Boeing, ha!

Wed, Oct 6, 2010 true small biz DC

About time - the ANC's were just the 21st century version of the 8a program/front from the '80's. I expect the WaPo to investigate all the ANC's and how about the hubzone programs as well.

Tue, Oct 5, 2010

As a retired contracting executive I find this revelation amusing. The practice of using small business as a front is so wide spread that over the years it has become an unspoken, yet accepted practice; everyone turned a blind eye. If SBA is really going to focus on this, many of the large Fortune 50 businesses on I-495 must be frantically reviewing their federal portfolios. While certainly no defense, the federal agencies have turned their heads to this practice and are in many respects are silent partners. These agencies sought the lowest possible prices while still fulfilling congressionally mandated socio-economic goals, hence the scam. It will be very interesting to see just how much stomach the SBA has to uncover the full extent of this business model.

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