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Something smells funny about this

The Feds are lowering the boom on a profitable business:

Federal officials on Friday suspended one of the nation's largest government contractors from receiving new work, alleging that the Northern Virginia company inappropriately went through other firms to gain access to contracts set aside for small companies.

The U.S. Small Business Administration's action imperils hundreds of millions of dollars in revenue for GTSI Corp., a top-50 contractor that has relied on the Pentagon and the rest of the federal government for more than 90 percent of its sales in recent years.

At issue is work GTSI did as a subcontractor for small businesses serving as the prime contractors on government contracts.

"There is evidence that GTSI's prime contractors had little to no involvement in the performance of contracts, in direct contravention of all applicable laws and regulations regarding the award of small business contracts," an SBA official wrote in a letter to GTSI's chief executive, Scott W. Friedlander. "The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors."

In an "open letter" to employees, customers, partners and investors Friday night, Friedlander said, "Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter." He said that the company looks forward "to providing you with a report on our activities as the situation warrants" and that "we appreciate your support during this time." He added: "Please be assured that we will fight to restore our good name."

The temporary suspension is one of the strongest contracting enforcement steps taken by the government in recent memory. GTSI can challenge the action, which could lead to a longer-lasting ban from government work, contracting specialists said.

"It's the first time in decades that the government has completely suspended a significant player, a legitimate top-tier contractor," said Steven Schooner, a contracting law professor at George Washington University. "It puts everybody on notice."

The move follows an internal SBA examination of GTSI activity over the past few years. It comes after a Washington Post investigation that detailed the relationship between GTSI and three small businesses, two of them entities known as Alaska native corporations.

One of those small businesses linked to GTSI is referenced at the end of the WaPo piece:

One relationship was with EyakTek, an Alaska native corporation. EyakTek's parent, Eyak Corp., and GTSI founded the company in 2002. Eyak received 51 percent ownership, while GTSI received 37 percent. As an Alaska native corporation, EyakTek has special contracting privileges, including the right to receive contracts of any size without competition.

In 2006, EyakTek and GTSI formed another subsidiary called EG Solutions, which was among 11 companies chosen to provide equipment and services to the Department of Homeland Security through a $3 billion contracting program called First Source. GTSI also worked as a subcontractor for MultimaxArray FirstSource, another small business in the program. The department First Source's contracts are cited in the SBA notice of suspension letter.

What's not mentioned, and I find that intriguing, is EyakTek's hostile takeover attempt of GTSI announced a couple of weeks ago:

Eyak Technology LLC, an Alaska Native-owned solutions consultant, launched a hostile bid for government systems integrator GTSI Corp (GTSI.O) worth $67 million, seeking to boost its profile in the defense procurement and services business.

EyakTek said it initially approached GTSI on Aug. 13, and came back with a repeated offer in a letter to GTSI's board after "several unsuccessful attempts to engage GTSI in substantive negotiations."

The $7 per share cash deal implies a premium of 35.1 percent to GTSI's Friday close of $5.18. GTSI shares jumped 33 percent to $6.90 before the bell Monday on Nasdaq.

GTSI had rejected the initial proposal on Aug 30.

This one's worthy of some digging in my view. 

Here you have an administration that has shown a propensity to bully profitable companies, taking surprise action against a company embroiled in a takeover attempt by a minority owned business, an embroiling the media is ignoring, the same media that precipitated the government action with a hit piece against the targeted profitable company.

It just smells funny.


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Comments (9)

What? The fed steps in to ... (Below threshold)
jim m:

What? The fed steps in to declare a minority owned business a winner when it couldn't get its way in the marketplace?

Just because obama has run the government as a personal spoils system and seems intent on taking out his own personal racial bitterness on every non-black person in this country, we should not infer that this is yet one more example of his race based presidency.

This is just Barry taking success away from those who earned it and spreading it around to his friends who couldn't do so on their own.

Even without Obama in the p... (Below threshold)
yetanotherjohn:

Even without Obama in the picture, the idea that a company should be given no bid contracts because of the ethnicity of it's owners is wrong.

This is just an extension o... (Below threshold)
codekeyguy:

This is just an extension of the Obama administration "nationalizing" American companies. Obama is just a little more subtle than Chavez, but the destruction of profit making companies (ala the Soviet communist model)is obvious.

Native American owned busin... (Below threshold)
galoob:

Native American owned businesses have pretty strong set-asides in the Federal Acquisition Regulations and laws.

Like casinos, it's a small bone Whitey threw them for taking all that land by force.

The Federal government has ... (Below threshold)
Mac Lorry:

The Federal government has been discriminating against large and white male owned business for a long time, not just with the election of Obama. It's more of the liberal redistribution mentality. These discriminatory procurement rules create opportunity for favored companies like EyakTek, but these companies often don't have the knowhow or means to fulfill the contracts they are awarded. The solution is to subcontract the work to companies that can do the work.

Apparently GTS did a good job for EyakTek, so much so that EyakTek may have only been acting as a middleman. If it's a violation to act as a middleman it's the fault of EyakTek even if GTS was helping EyakTek get the contracts in the first place. However, the government doesn't dare go after a favored company like EyakTek for political reasons.

Anytime the government establishes policies for awarding contracts on anything but free market principles it's creating the potential for corruption and unintended consequences.

special contracting privile... (Below threshold)
Will:

special contracting privileges, including the right to receive contracts of any size without competition.

Not really a good cornerstone for a lasting symbiotic relationship.

Seizer must be stopped.</p... (Below threshold)
914:

Seizer must be stopped.

DHS Bolshevik scum raus! No... (Below threshold)
Erick:

DHS Bolshevik scum raus! No one believes their bogus war on terror being used to turn America into a bolshevik crappy country. Everyone is waking up from their chemically induced brainwashing via their water supplies, food, and everything else the DHS sits by and lets happen while they're suppose to be protecting our water and food supplies allegedly. DHS and Washington are the terrorists. They are paralyzed in fear because their Neo Con regime is crumbling around them and all they have left is to scream about their bogus 9/11 and phony Osama bin Laden crap. They made the same mistakes those who lost World War Two made in counting their chickens before they hatched, like roses and Iraq, history is ironic and their defeat is bliss...

If any of you actually knew... (Below threshold)
Steve Jones:

If any of you actually knew how government contracting works, you would de-politicize all of your comments and deal in FACTS. The GTSi situation has nothing to do with race or democrats v. republicans. It has to do with the shoddy nature of the ANC and small business procurement process. For DECADES, the Fed government has required a certain percentage of contracting to go to small businesses. The problem is that few small businesses are capable of working on the bids or the projects themselves, much less hold the credit with manufacturers and others to fulfill the bid requirements, so all they end up doing is 'holding the paper' and having larger companies actually do the work. GTSi is the first of many companies that will get their hands slapped for acting as the muscle behind a small business 'shell' corporation.




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