Firms Redirected Contracts Awarded Through SBA Set-Aside Program

Two government contractors designated as small, Alaska-native-owned firms used a Small Business Administration loan program to direct millions of dollars in fees to other companies owned by managers who were not Alaska natives and should not have received the payments.

The findings are part of an ongoing review by the Office of Inspector General at the Small Business Administration, reports Robert O'Harrow Jr. of The Washington Post in Firms Redirected Money Meant For Native Alaskans, Audit Finds.

The inspector general is looking at the status of Alaska native corporations, or ANCs, which are eligible to receive sole-source contracts of any size from federal agencies. Congress three decades ago permitted the creation of ANCs as a means to settle land claims and to spur economic development.

In this case, the firms, established by ANC parents, hired managers who soon gained ownership in the companies. These managers then hired other companies they personally owned and paid them with money from the set-aside contracts, according to the report. The financial arrangements allowed those other companies to take advantage of the set-aside programs without the SBA's approval, auditors found.

The audit report recommended that the two companies -- APM, a construction management company from Yorba Linda, Calif., and Goldbelt Raven, a Chantilly firm that provides acquisitions support, program management and technology services -- be terminated from the agency's 8(a) small business set-aside program.

From 2003 to 2006, the firms secured federal contracts worth up to $833 million.

By Sharon McLoone |  August 14, 2008; 10:02 AM ET Gov't Contracting , Watchdogs
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Thank you for providing this information.

But please don't forget Spencer Hsu also reported on similar fraud perpetrated by SAIC, General Dynamics and L-3 in November of 2007.

SAIC, in particular, is notorious for stealing work from small businesses unethically, by first riding in on SBA set-asides, and then smearing and sliming the small business to the Government sponsor. The Government sponsor then awards the full contract back to SAIC, to keep from appearing incompetent for giving it to the small company in the first place. SAIC promises not to tell anyone if they get the contract. Isn't that convenient?

Here are a few relevant quotes from HSU's article.

DHS Erroneously Gives $475 Million Contract to Little-Known Firm
Monday, November 19, 2007
By Spencer S. Hsu
The Washington Post

WASHINGTON -- The Department of Homeland Security improperly awarded a half-billion dollar, no-bid contract in 2003 to a little-known company to maintain thousands of x-ray, radiation and other screening machines at U.S. border checkpoints, incorrectly designating the firm a disadvantaged small business, according to a report by the department's inspector general.

The annual revenues of Chenega Technology Services Corp., a firm owned by native Alaskans and based in Fairfax County, Va., were too high to qualify for the nine-year, $475 million contract, the report said.
The report also stated that CBP failed to monitor whether Chenega violated federal regulations that bar it from passing more than half the contract's labor costs to subcontractors such as SAIC and subsidiaries of General Dynamics and L-3 Communications, and that CBP and Chenega disagreed over whether the agency directed the company to subcontract with specific firms.

Posted by: Stop Fraud | August 14, 2008 10:56 AM

I am thrilled that the Washington Post keeps shining a light on the ANC sole source issue. Giving firms billions and billions of dollars with no competition is a disgrace and needs to STOP NOW. CONGRESS - WAKE UP - Uncle TED IS GOING TO JAIL - THERE IS NO REASON TO BE AFRAID ANYMORE. If Ted Stevens needed to find a way to subsidize Alaskans, lets make it a level playing field and just send a check up there. The corruption and abuse that this program allows is inexcusable. Thanks Uncle Ted - jeeze maybe there is another indictment buried in here somewhere? I hope the investigators looking at Ted Stevens are flushing out the connections ( $ ) between Stevens, his family members and the ANC's. Can anyone say - "where does the money really go?"

Posted by: anc contract abuse | August 14, 2008 4:41 PM

Unfortunately what this and other articles show is the lack of controls put in place to manage a program with good intentions. Just as the "beltway bandits" did in the eighties and nineties, opportunists are making it more and more difficult for legit small businesses to pursue government business by creating distractions like this.

What you have now are ANC organizations who are trying to traditional business growth and development being hurt by those which seek to exploit the system. The HUBZone program and the Service-Disabled Vet's are facing similar challenges.

The more it happens, the more a shadow is cast on the small business community. It's not as if there are not enough obstacles facing the largest segment for job creation in our nation.

Create level playing fields, create realistic expectations for agencies and contractors, enforce the rules which are already in existence and stop making new ones which are essentially useless, and for heaven's sake pass a budget.

Guy Timberlake
The American Small Business Coalition

Posted by: Guy Timberlake, The ASBC | August 14, 2008 7:20 PM

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