On October 4, 2010, FederalTimes.com carried a small story, which reported that GTSI Corporation had been suspended by the General Services Administration (GSA) from receiving future awards from the Federal government. GTSI is a mid-size reseller of computer software and other IT-related applications (including systems integration services), based in Northern Virginia (near Dulles Airport). Reportedly, the GSA alleged that—

… 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 and with contracts not being performed in accordance with applicable law, regulations and contract terms …

A copy of the suspension letter was posted on-line by GovExec.com—you can find it here. The letter alleges that GTSI, who did not qualify as a small business, was a subcontractor on a Department of Homeland Security (DHS) contract that was set-aside for small business bids. The letter alleges that—

There is evidence that GTSI’s prime contractors had little to no involvement in the performance of the contracts, in direct contravention of applicable laws and regulations regarding the award of small business contracts. 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, and with contracts not being performed in accordance with applicable law, regulations, and contact terms.

In order to allow the prime contractors to appear eligible … GTSI actively engaged in conduct concealing the extent of its involvement as a subcontractor …. [including such actions as] GTSI created invoices and placed the letterhead of the prime contractor on the invoice … so the invoice would appear to have been created by the prime contractor rather than by GTSI.

This is a big deal for GTSI. As the FederalTimes article notes, “Last year, some 72 percent of GTSI's $762 million in sales came from the Defense Department and other federal agencies, according to its most recent annual report.” It is such a big deal, that it reportedly cratered an upcoming acquisition of GTSI by Eyak Technologies, LLC—who is an Alaska Native Corporation (ANC). The FederalTimes article reports that, “Eyak … said in a statement … that it was withdrawing its $7.50 per share cash proposal ‘in order to carefully evaluate the effect of the SBA's action upon GTSI.’”

GTSI’s future, then, is threatened on two fronts—the termination of an upcoming acquisition, and potential loss of nearly three-quarters of its annual revenue. For its part, the company asserted that it did nothing wrong. As reported by the FederalTimes article—

‘Until tonight, no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter,’ [GTSI CEO Scott] Friedlander wrote. ‘Please be assured that we will fight to restore our good name.’

A couple of days later, Robert Brodsky reported further details on GTSI’s problems at GovExec.com. He reported—

The allegations against GTSI stem from a contract awarded two years ago. In September 2008, a joint venture company known as MultiMaxArray was awarded a $165 million delivery order on Homeland Security's FirstSource information technology contract. FirstSource was a 100 percent small business set-aside contract reserved for companies with fewer than 150 employees.

Days after the award, Wildflower International Ltd., an IT firm that promotes itself as New Mexico's largest woman-owned small business, filed a protest … arguing MultiMaxArray was not eligible for the contract. …

Among Wildflower's arguments was MultiMaxArray was little more than a front company and most, if not all, the work was to be performed by GTSI, a company that, based on its size, was ineligible for the FirstSource contract. …

The protest filing said GTSI had ‘taken control’ of MultiMaxArray, which at the time of the delivery order, had ceased to exist due to a merger months earlier with Harris Technical Services Corp., Wildflower said.

‘GTSI apparently designs the systems necessary to satisfy a FirstSource delivery order, selects the computer hardware and software configurations, negotiates pricing with the vendors, prepares the MultiMaxArray proposal and then performs all of the necessary services to install, maintain and provide technical support and training for the DHS user,’ the protest document said. The protest further claimed that during the kick-off meeting for the contract, several GTSI employees represented the prime contractor to discuss performance of the delivery order. Ultimately, MultiMaxArray decided not to fight the protest and the contract was terminated.

Tellingly, Brodsky noted that, “This is not the first time GTSI has been in trouble with the government. In June 2005, the SBA inspector general recommended the government permanently debar GTSI for misrepresenting itself as a small business on a Navy IT hardware contract.” However (as Brodsky noted), “after reviewing the recommendation, the SBA's Office of General Counsel decided it did not have the authority to debar GTSI since it was not an SBA contract in question.”

Finally, Brodsky noted that this is not an isolated incident. He reported that, “The SBA IG also is investigating GTSI's actions in regard to its conduct as a subcontractor on other set-aside contracts, including those awarded to ANCs.”

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