How SBA action led GTSI leader to fall on his sword

Scott Friedlander, who announced his voluntary resignation today as GTSI Corp. president and CEO, says he had a personal mission to save the company.

His resignation announcement coincides with a company statement that the Small Business Administration has lifted the temporary federal contract suspension it imposed on the company on Oct. 1, 2010.

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“It was very important to me as the leader of the company to protect the future of the company, very important, and to protect the families here,” Friedlander told Washington Technology in his first interview since announcing his decision earlier today.

Friedlander, who has been with GTSI for 10 years and replaced Jim Leto as CEO this past January, will step down next Tuesday, Oct. 26.

The company’s struggles followed the SBA's decision to bar GTSI from further government contracts pending the outcome of an agency investigation into the company’s dealings with its small-business partners.

Friedlander said he was out of the office on Friday, Oct. 1, when the SBA fax that halted some 60 GTSI federal contracts arrived late in the afternoon.

“There was no previous notice to the company, no due process at all,” Friedlander said. “And there was no formal investigation prior that we were aware of. We were, quite candidly, really blindsided.”

Friedlander said the company went into crisis mode almost immediately with his executives, the board and the legal team working to develop legal and communications plans.

The following Wednesday, GTSI officials met with the SBA to understand what the 30-day suspension meant, its possible ramifications for the future of the company, and what GTSI could do to get the ban lifted.

“They came back with a litany of questions, 32 questions, that would have taken us months to answer literally,” Friedlander said.

In addition, the SBA was using as the basis for its claims an administrative record that dated back to March of 2007, Friedlander said. “I was not in the CEO role nor the president’s role, but I was here.”

Unlike many large prime systems integrators with annuity-based businesses and five- and 10-year contacts, GTSI doesn’t have long-term contracts that would continue to provide a revenue stream, he said.

“We right away started feeling what I’ll call the pain of trying to resolve this, and that was in week one,” Friedlander said. “By week two, the employee base was nervous and so were the banks. In fact, we were not far off of a default notice.”

Facing possible debarment at the end of the 30-day suspension, pressure built in GTSI despite the fact that it could continue working on existing contracts but could not sign any new business.

“We worked with our banks successfully and then I thought it was appropriate in terms of a solution, and to try to limit the suspension notice, that I voluntarily resign with [General Counsel] Charles DeLeon,” he said.

Friedlander said the board was “very, very reluctant” to accept the resignations. “But they understood that it was about saving 530 jobs and getting the suspension lifted and putting the company back into business – even if it meant some limiting requirements by the SBA.”

Those restrictions include an immediate halt to working with small businesses serving as prime contractors, ending GTSI’s participation in the SBA’s mentor-protégé program and no new joint ventures with small businesses.

The newly struck agreement with SBA could last anywhere from 30 days to three years, but company officials expect to resolve the remaining issues long before 2013.

“Regardless of how we’ve been painted, this is a quality company,” Friedlander said. “It’s very ethical. Are there areas for improvement? Absolutely. There always are with 500-plus employees, but it has been painted very differently than the company it is.”

Meanwhile, GTSI will search for new leadership, a search that already has begun with input from Friedlander.

The board has selected as interim co-CEOs Senior Vice President Sandra Gillespie and Senior Vice President and CFO Peter Whitfield.

“We’ll be bringing in a CEO for sure within this quarter, so by January,” Friedlander said.

Friedlander said he will stay in the local government contractor field as a president or CEO either with an equity investment group or a company in search of experienced leadership.

GTSI, of Herndon, Va., ranks No. 59 on Washington Technology’s 2010 Top 100 list of the largest federal government contractors.