Fraud continues in small business preference programs

Contractor fraud in small business set-aside programs is difficult to detect and prove, but its annual costs to government are significant in dollars and damage to legitimate business that deserve the work, two federal watchdogs told a House panel Thursday.

In fulfilling the Obama administration’s goal of giving 23 percent of prime federal contracts to small business, agencies need to do better at making a public example of “bad actors” and at vetting contractors that misrepresent their qualifications for minority advantages through self-certification, according to Peggy Gustafson, inspector general for the Small Business Administration, and Brian Miller, IG for the General Services Administration.

They spoke at a hearing of the House Small Business Subcommittee on Investigations, Oversight and Regulations called by Chairman Mike Coffman, R-Colo., who sought to learn why much contractor fraud goes unpunished and unprosecuted.

“Just as we all benefit from small business prime contracting, we all suffer when fraud rears its ugly head,” Coffman said. “Legitimate small businesses lose the ability to perform when contracts go to firms that do not qualify for, or who are not following the rules associated with, the small business contracting program. The government suffers from this fraud because bad actors give all small businesses a bad name, so contacting officers are more reluctant to use the small business programs, which in turn results in less competition and a less vibrant industrial base.”

The set-aside programs consist chiefly of preferences for section 8(a) business development, Historically Underutilized Business Zones, women-owned businesses and the service-disabled veteran-owned program. Both inspectors general testified that their own agencies had fallen victim to fraud. SBA and the HUBZone certification program played a role in the sensational case exposed with the arrests earlier this month involving $20 million in fraud allegedly committed by contractors and two employees of the Army Corps of Engineers, Gustafson noted.

Miller described a recent $6 million contract awarded to a company that claimed to be run by a disabled veteran whose documents said he served three tours of duty during the Vietnam War and received medals and citations. It turned out, Miller said, he was a mechanical engineer serving stateside in the National Guard.

“It’s difficult to prove a monetary loss to the government because it did receive the goods and services,” Miller said. “But the real loss is to program integrity, to the legitimate small businesses that didn’t get the contract.” He added that fraudulent self-certification is difficult to detect and agencies rely on such information in the majority of the preference contract awards because their resources are limited.

“Strong penalties are needed to deter” the fraud, he said. “The tougher it is to detect, the tougher penalties must be,” though the rules should avoid punishing innocent companies simply because of a clerical error, he said.

Gustafson said each type of set-aside has its own level of vetting and the Section 8 program is the hardest for contractors to qualify for. She agreed that agencies could deter more fraud by publicizing their reviews of such programs, which in one instance prompted “contractors to drop out in droves.” It is acknowledged by all IGs, she added, “that the federal government doesn’t use suspension and debarment enough — that hits contractors in the pocketbook.”

Miller noted that GSA has an interactive map on its website providing other agencies with links to state databases reporting contractors that have been suspended or debarred.

Coffman asked whether agencies should take more responsibility for policing fraud. “It’s hard to draw simple rules,” Gustafson said. “Overburdened” agencies focused on awarding contracts are “not expected to know all the ins and outs” of the set-aside programs. Also, “the more difficult the rules are to administer, the harder it is to present the case to a jury,” she said.

But the issue “needs more discussion in the executive branch and guidance from Congress since it’s not always clear who’s minding the store,” she said. “If the programs don’t have integrity, we might as well throw them open to open competition.”

— by Charles S. Clark – Government Executive – October 27, 2011 – http://www.govexec.com/story_page.cfm?articleid=49156&dcn=e_gvet

SAM deployment likely to be delayed; GSA might replace DUNS

A General Services Administration (GSA) effort to consolidate federal online acquisition systems will likely receive no development money during the current fiscal year, causing GSA officials to anticipate a delay in the project.

However, GSA officials are going forward with a planned sources sought notice, to be released shortly, seeking private sector input on the viability of replacing mandatory federal vendor acquirement of a DUNS number from Dun & Bradstreet with a government-generated unique identifier. [Editor’s Note: The sources sought was published on Oct. 27, 2011, with response deadline of Nov. 21, 2011.  Details on the sources sought may be viewed at https://www.fbo.gov/?s=opportunity&mode=form&id=4cfa1aa7d67a29f5aeb3146f1cbf4758&tab=core&_cview=0.]

If the government does replace DUNS with its own unique identifier system for vendors, the transition would likely be tied to the third phase of the online acquisition system consolidation effort, said Kathleen Turco, head of GSA’s office of governmentwide policy, during an Oct. 21 interview.

The integration effort seeks to consolidate 9 currently separate systems into one, to be known as the System for Award Management, or SAM. IBM received a $74.4 million contract in 2010 to develop the SAM architecture; part of the consolidation effort includes unifying the currently disparate databases into a single, unified one.

Because GSA received $7 million in development funds during fiscal 2011, which ended on Sept. 30, it will be able to proceed with the first phase of the consolidation, which will tie together Central Contractor Registration, Online Representations and Certifications Application and the Excluded Parties List System.

Starting in May, front-end users will find that they have to log onto SAM only once to access the functionalities of all three systems, Turco said.

However, a request for $15 million in development, modernization and enhancement money for the current fiscal year has bumped up against spending constraints; the Senate Appropriations Committee markup of GSA’s fiscal 2012 spending bill denied the request in total. The House version would appropriate about $3 million in DME money for the project, Turco said. Congress has yet to pass any fiscal 2012 appropriations bill; the federal government is operating under a continuing resolution that expires on midnight of Nov. 18.

As a result of the House and Senate marks, Turco said GSA will likely postpone roll out of phase 2, under which GSA plans to consolidate FedBizOps, the Electronic Subcontracting Reporting System, and the Assistance Program Catalog. Originally, GSA had planned to unveil that phase in the spring of 2013; if GSA receives sufficient funding for fiscal 2013, it would be able to complete that phase in spring 2014, Turco said.

The third phase would consolidate FPDS , Wage Determinations Online and the Past Performance Information Retrieval System. The earliest phase 3 could now be completed–it was originally planned for spring 2014–is now spring 2015, Turco said.

It’s in conjunction with phase 3 that GSA would likely also transition from using DUNS as a unique vendor identifier to a government-generated number, if GSA decides to do so, Turco added.

Vendors wishing to do business with the government must receive a unique identifier–in some cases, more than one, depending on the number of physical locations and legal divisions a company has–and GSA has long contracted with Dun & Bradstreet for government vendors to receive Data Universal Numbering System identifier for free.

But, the government pays Dun & Bradstreet $18 million a year for the service, making it the single most expensive element of the Integrated Acquisition Environment, the name GSA gives to 9 systems set for consolidation into SAM.

“We’ve had a lot of push on us from the Hill and many vendors have said to us ‘Why is it only Dun and Bradstreet?'” Turco said.

However, replacing DUNS would be no easy task, she acknowledged, since DUNS are used in financial systems to pay vendors and have become deeply integrated into IAE feeder systems.

— by David Perera, Fierce Government IT, Oct. 24, 2011 – http://www.fiercegovernmentit.com/story/turco-sam-deployment-likely-be-delayed-gsa-might-replace-duns/2011-10-22?utm_medium=nl&utm_source=internal

House subpoenas four agencies for small-business noncompliance

Four federal agencies were issued subpoenas by the House Small Business Committee on Oct. 20 for not complying with the Small Business Act’s procurement policies, according to a committee staffer.

The departments of Justice, Agriculture, Treasury and State were summoned to appear before the the Small Business subcommittee on contracting and workforce on Nov. 1 to testify why they are in noncompliance.

At issue is the “structure” of these agencies’ Small and Disadvantaged Business Utilization Offices (OSDBU) and “the fact that they are not reporting to the agency head or deputy head,” wrote Darrell Jordon, house committee spokesman, in an e-mail to Washington Technology.

OSDBUs were conceived in 1978 with the purpose of having federal agencies set aside contracts for small and disadvantaged businesses. The Small Business Act also has requirements that agencies report their procurement activities with small and disadvantaged businesses.

Justice, Agriculture, Treasury and State were warned of their missteps and given a chance to remedy the situation after a June Government Accountability Office small business contracting report found seven agencies not in compliance.

Following that report, letters to agencies were sent by subcommittee Chairman Mick Mulvaney (R-SC). As a result, the Interior Department and Social Security Administration are now in compliance, and a third, the Commerce Department, was pardoned due to an administrative issue.

In September, agencies were reminded of their noncompliance by memo and a hearing was held on Sept. 15 by the subcommittee to examine the GAO report and the economic impact of noncompliance.

As part of the subpoena procedure, the four agencies must produce a number of documents, including paperwork relating to their small business procurement programs, attainment of small business goals or challenges to decisions not to restrict competition to small business between Jan. 20, 2009, and Sept. 30, 2011.

About the Author: Alysha Sideman is an online content producer with 1105 Government Information Group. Published by Washington Technology – Oct. 21, 2011 at http://washingtontechnology.com/articles/2011/10/21/small-biz-committee-subpoenas.aspx

Obama opposes ban on contracts with tax-delinquent contractors

Obama administration officials are concerned that a Senate appropriations bill would hinder agencies’ ability to make informed decisions about contracting with tax-delinquent companies.

The administration agrees that a provision in the Senate’s fiscal 2012 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act (H.R. 2112) combats waste and fraud in the government marketplace. However, officials warn that the bill, as it reads currently, would hurt contracting decisions.

Like a version recently passed by the House, the Senate bill would prohibit agencies from awarding contracts to companies with unpaid federal taxes. But the Senate version would go further by barring the award of a contract or grant worth more than $5 million if a company cannot certify it has paid its taxes in the last three years or has not been convicted of a tax-related crime. A company cannot even have received a notice of an unpaid tax assessment in the previous three months, unless it’s being paid off.

“As written, the provision would deny agencies the ability to make informed decisions about contracts, grants, and other federal assistance,” according to an Oct. 17 statement of administration policy. “It thus risks causing unintended consequences that could translate into unwarranted penalties on businesses and unjustified costs on taxpayers.”

In 2010, President Barack Obama moved against contractors who don’t pay their taxes. He called on officials at Treasury Department, IRS, and the Office of Management and Budget to find ways to share more information across departmental lines to keep tax delinquents out of the federal marketplace. This summer the president launched the Campaign to Cut Waste, led by the vice president, which coincides with the emphasis on doing business with contractors of good standing.

Tax delinquent contractors are a problem. In May, the Government Accountability Office reported that at least 3,700 federal contractors that received economic stimulus law funds owe $757 million in unpaid federal taxes.

The Senate has been considering the bill, but has not passed it yet. The House passed its version in June.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Washington Technology.  Published Oct. 24, 2011 at http://washingtontechnology.com/articles/2011/10/24/senate-appropriations-bill-tax-delinquent-contractors-obama.aspx?s=wtdaily_251011.

Procurement chief defends Obama’s commitment to small business

A proposed rule to curb agencies’ little used capacity to offer higher payments to needier contractors “will have no impact on the government’s ability or commitment to drive contracting opportunities for small disadvantaged businesses,” Dan Gordon, administrator of the White House Office of Federal Procurement Policy, said Friday.

In a blog post for the Office of Management and Budget, Gordon sought to reassure some in the minority business community that a proposed regulation issued in September by the Small Business Administration is a routine “housekeeping” tool designed to catch the law up with a 2008 court ruling that declared such price premiums unconstitutional.

“The proposed rule in no way changes the fundamental policies, practices or programs that agencies have been using in recent years to achieve strong SDB participation in the federal marketplace, including the goal of awarding 5 percent of federal procurement dollars to SDBs,” Gordon wrote.

The affected agencies — the Defense Department, NASA and the U.S. Coast Guard — have not used price premiums to attract disadvantaged small contractors in years, Gordon noted. But the administration has “been working with the Minority Business Development Agency to strengthen the bond between contracting, small business and program offices at every agency,” Gordon wrote. “Since the beginning of [fiscal] 2009, agencies have awarded more than $85 billion in contracts to SDBs, exceeding the goal of awarding at least 5 percent of contract dollars to SDBs.” In fiscal 2010, he added, contract awards to small disadvantaged businesses accounted for 7.95 percent of all eligible contract dollars, “well above the goal.”

Gordon’s clarification came as the Obama administration readied a new set of executive actions designed to spur job creation in large and small businesses while Congress debates the president’s larger proposed jobs package.

The perception among some that ending premium payments to disadvantaged businesses was a pullback in the administration’s commitment was rejected by Molly Brogan, vice president of public affairs for the National Small Business Association. “At the end of the day, small businesses just want a level playing field,” she told Government Executive. “Ensuring that small businesses — including SDB businesses — have a fair opportunity to compete for federal dollars ought to be the No. 1 goal. We don’t believe this new rule will change [that] in any way.”

Raul Espinosa, founder of a Jacksonville, Fla. – based university nonprofit called the Fairness in Procurement Alliance, which has been pressing for stronger rules on accelerating payments to small disadvantaged businesses, said he was grateful for the administration’s overall effort, but worries it might be “lip service.” Changes “will mean nothing unless they’re codified into the federal acquisition regulation and referred to in actual contracts,” he said.

—  by Charles S. Clark – Government Executive – October 24, 2011 – http://www.govexec.com/story_page.cfm?articleid=49130&dcn=e_tma