What's next for GTSI?

The company faces a tough road back from suspension. What will it do first?

The Small Business Administration put its foot down last week by suspending GTSI Corp. from federal contracting, and experts say it will be hard to get SBA to back down, especially in this political environment.

“This is going to be an uphill battle [for GTSI] because the government has its documents” as proof, and has gone so far as a suspension, said Theodore Watson, a government contracts attorney at Watson and Associates.

GTSI has two options now that SBA decided to block the value-added reseller company from doing new business with the government.

Company executives can bring in lawyers to challenge SBA’s decision and show it did nothing wrong or, at least, that the allegations are a misunderstanding. Or they can plead their case to SBA’s suspension official, in hopes that SBA might lift the suspension.

GTSI executives will have to prove to SBA that it understands the problems, and that they’ve taken care of them. And, as important, they will have to make SBA believe that the same misdeeds won’t happen again, said Larry Allen, president of the Coalition for Government Procurement.

Allen said, however, that GTSI will have to do a lot to convince SBA that it has solved the whole problem, including sacrificing a number of senior managers.

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Why GTSI and are others in SBA's crosshairs? 

SBA sent a letter to GTSI Oct. 1, suspending GTSI from getting any new work from the federal government, Allen said.

GTSI is accused by SBA of using small-business prime contractors as a front to funnel work and revenue to GTSI. One of the contracts is the Homeland Security Department's FirstSource indefinite-delivery, indefinite-quantity contract, which is set aside only for small businesses. GTSI was a subcontractor to two small businesses on that contract.

Watson said an important issue that goes hand-in-hand with a suspension is a company’s other business.

While the government can’t award work to GTSI, prime contractors can’t do business with it either because GTSI is suspended even from subcontracting. And beyond that, GTSI’s reputation is taking a major blow.

In other situations of punishment, suspensions have lasted from a few days, as when the Environmental Protection Agency suspended IBM in 2008, to several years in other circumstances. Because since nearly all of GTSI's revenue is derived from the federal government, a lengthy suspension could be disasterous for the company.

Two issues seem to put GTSI in a tough position regarding its suspension. The IBM case dealt with a single alleged misstep on a specific procurement, Allen said. However, SBA charges that, in GTSI’s case, employees misrepresented themselves numerous times as working for the small business prime contractors, when they actually worked for GTSI.

“This and other evidence in the administrative record shows an ongoing scheme on the part of GTSI and others to accomplish the improper purposes referenced above,” according to SBA's letter to GTSI notifying it about the suspension

SBA also wrote that it has evidence that GTSI’s prime contractors “had little or no involvement in the performance of the contracts.” GTSI was the subcontractor to at least two small businesses.

As for the political climate, members of Congress have been concerned about small business issues, such as misrepresentations and having actually do the work. Sen. Claire McCaskill (D-Mo.), chairwoman of the Homeland Security and Governmental Affairs Committee Contracting Oversight Subcommittee, held hearings last year looking at whether Alaska Native Corporations were posing as companies simply passing work through to subcontractors. Other lawmakers have introduced legislation to toughen the rules on pass-through companies.

SBA Administrator Karen Mills has said she would work on these types of small-business problems after the Government Accountability Office found small firms in SBA’s business develop programs simply pass work on to large-business subcontractors.

In addition agencies, such as the Defense Department, have issued rules on companies that do little more than send work to subcontractors.

Allen said those decision represent the overtone of the political environment that GTSI finds itself with the suspension.