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.