GTSI suspension: a shot across the bow?

The Small Business Administration's suspension Friday of GTSI Corp. from winning new federal contracts because of allegations it received contract dollars meant for small businesses has raised questions and concerns within the contracting community -- and maybe some fear.

“This could be devastating for the company,” said Warren Suss, president of Suss Consulting. “They live and die by federal contracts. Being suspended from government contracts could be a crushing blow.”

Late Monday night GTSI released a new statement saying that it would take prompt action to work with SBA to resolve the situation so it could continue to serve government customers. But the company warned that it could not predict the outcome of the suspension or of SBA's investigation. The results could be administrative, civil or criminal liabilities including repayments, fines or other penalties including debarment. "Any of which could have a material adverse effect on GTSI's going concern status, financial condition and results of operations," the company said in its statement.

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Suss called the SBA action rare, saying he couldn’t recall any similar incident.

“This is one of the first ones of this nature I can recall,” said Bob Dinkel, president and chief operating officer of FedResults. He called the SBA action “a huge albatross around GTSI.”

Dinkel said that the federal government is issuing more and more contracts aimed at small businesses, such as Alliant Small Business, and telling those firms to build their team. “What do you think is on their team? It’s all the big guys,” he said.

“In those kinds of situations it’s still an [indefinite-delivery, indefinite-quantity contract] and a shootout on task orders,” Dinkel said. “The big difference here is there is no shootout. The task orders are issued because it’s an Alaska Native Corporation, right?, and noncompetitive.”

At least one of the companies involved in the alleged GTSI scheme is Eyak Technologies, an ANC that also has been trying to buy GTSI.

He called into question the timing of the SBA step, which came on the first day of the new federal fiscal year.

FedResults and other government contractors booked millions of dollars in new business just before the end of fiscal 2010, Dinkel said.

“Do you know how much business GTSI booked in the last week of the government" year? he said, noting also that any “flow-over business” -- that is, GTSI contracts in the works that weren’t awarded by Sept. 30 -- could also be affected by the SBA suspension.

“The timing is a factor that no one has brought out yet,” he said. “I’ve got to believe that GTSI booked tens of millions in business those last couple of weeks.”

If the SBA suspension notice had been released earlier and contained errors that negatively affected GTSI’s year-end contracts, “talk about [possible] shareholders lawsuits,” Dinkel said.

That could still happen as Eyak on Monday morning withdrew its takeover offer after GTSI stock fell markedly at the opening of the Nasdaq exchange.

However, Dinkel called the allegations hearsay until “somebody really proves this was in fact the case. I’ve followed GTSI for years and always found them very above board and a respectable company.”

According to a federal contracting attorney, the standard procedure following a suspension is for a disbarment hearing to be held within 30 days.

“It is unusual that the SBA would go after a large business so to speak, whereas if you looked at the suspensions and debarments that have come out of SBA, it’s usually because someone has lied on their application to get into the 8(a) program or they’re slapping the wrist of someone who’s trying to get a benefit through one of the SBA programs,” said the attorney, who asked not to be named.

“Here it’s a little different, I think, in that it appears that GTSI was figuring out how to get benefits out of the SBA program when GTSI is a really big company,” he said.

“If my memory is any good, in the 20 plus years I’ve been doing this, I’ve never seen the SBA go after a big company for what we would call abusing the socio-economic programs that are offered to small businesses,” he added.

But this is not the first time that GTSI has been cited by a federal agency for possible contract manipulations, said Guy Timberlake, chief visionary at the American Small Business Coalition.

In a blog posting this weekend, Timberlake wrote that GTSI was “called to the carpet by a DHS official for forgetting they were not the prime on FirstSource (a contract vehicle awarded to small businesses), or for their apparent less than honorable intentions after DHS called them out on their behavior related to the FirstSource contract.”

The FirstSource contract is cited in SBA's suspension letter to GTSI.

“On the one hand, it’s about time,” Timberlake said. “There’s nothing new about the allegations SBA made” that apply to the industry as a whole.

He said primes have been using small-businesses to win federal contracts for a long time. “They’re just the first ones to get caught in a very bright spotlight, that’s all.”

Timberlake also noted the timing of the action, coinciding with the start of the fiscal year, promulgation of new rules within the Federal Acquisition Regulation (FAR) and enactment of the Small Business Jobs and Credit Act, which gives small businesses more opportunities to win contracts.

Timberlake said the new legislation and the SBA action suggests “that the government is finally catching up with a lot of the rhetoric that’s been out there.”

“What I hope this is is a bonafide shot across the bow to [large] companies that are out there doing this kind of thing,” he said. “It’s the SBA saying, ‘We’re gonna come after you and we’re gonna find you.’”

The language in the new law detailing how prime contractors may use their small-business partners will have more of an impact than the SBA debarment action, he said.

He added, “I don’t know if there’s going to be any significant impact on small businesses from a benefit standpoint any time soon. There will be an impact, however, with regard to how joint ventures, mentor-protégé relationships and teaming as a whole between small companies and large companies are going to be scrutinized.”