Ah, the old refrain plays once again, like the coda in “Layla” by Derek and the Dominos.

What are we talking about? We’re talking about misrepresentation of the size of a business—which can land a company in some seriously hot water.

This is not a new issue. For instance, we previously reported on the problems faced by GTSI, a decent-sized Federal contractor that was alleged to have been “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 …”

While we may sometimes cynically comment on the “games” associated with socio-economic reporting, and the various bureaucratic rules that govern how companies claim credit for awarding subcontracts to the various categories of small business entities, the fact remains that the ability to meet one’s small business socio-economic goals can often be a competitive advantage in the Federal marketplace. Not to mention that a large portion of Federal contract awards are set-aside for small businesses. So it clearly behooves a company to claim small business size status when permitted to do so by FAR Part 19 and the SBA regulations at Title 13 of the Code of Federal Regulations.

On the other hand, misrepresentation of business size can be a problem, as two Orlando men have learned (to their chagrin), according to this story in the Tampa Bay Times. The story, penned by William Levesque, reported that Eduardo Blanchet and Daniel Guillan were founders of B.I.B. Consulting—a (legitimate) small business that won a $50 million contract from the U.S. Special Operations Command (SOCOM) to provide foreign-language instruction services. (Apparently the Defense Language Institute Foreign Language Center at the Presidio of Monterey was unavailable to provide those services.)

So far so good. The two men and their company were within the bounds of propriety. But then (allegedly) the two men formed another company—MiLanguages—to compete for another $100 million SOCOM language service contract. Together, the two (allegedly) ran both companies and even established MiLanguages as a B.I.B. Consulting subcontractor; but together, the two affiliated companies no longer qualified for treatment as small businesses. Unfortunately MiLanguages (allegedly) certified to SOCOM that it was a small business when bidding on the new contract, and it was (allegedly) awarded to them on that basis.

According to Mr. Levesque’s story—

The indictment said the men made false representations and submitted false information to the Small Business Administration to win designation as a small business eligible to receive the SOCom contract.

In 2007, the men instructed an attorney to ‘send a letter to the SBA size program manager relaying that MiLanguages and B.I.B. had no common officers, shareholders or employees … and that a 'clear line of fracture' existed between B.I.B. and MiLanguages,’ the indictment said.

In reality, the indictment said, the two men set up MiLanguages bank accounts in which they were the only signatories.

The government has moved to seize the assets of the company and two men, including more than $7 million in bank accounts, property and vehicles. The government said it also will seek a $100 million forfeiture judgment against them.

Yeesh! The Feds sound upset, don’t they?

Readers of this website blog should be clear that affiliated entities under common control count together when determining business size. Businesses that do not qualify as small businesses under the applicable NAICS code should not certify that they are small businesses. Period.

Further, FAR Part 19 is tricky and needs to be read in conjunction with the SBA regulations that lie outside of the FAR. When in doubt, have a knowledgeable and experienced attorney guide you through the calculations—lest you wind up as our two friends from Orlando did.