GTSI suspended from acquiring new business

Monday - 10/4/2010, 8:36pm EDT

Nick Wakeman, editor, Washington Technology

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Suspended. That was the crux of a fax sent to GTSI Corp., one of the government's largest contractors, at 4:14 Friday afternoon. What's behind this decision? Why did it happen? What's next? And what does this action mean? It's anybody's guess.

"We're still kind of digging into the process, because it happens so rarely," Nick Wakeman, editor of Washington Technology magazine said.

The SBA's suspension essentially prevents GTSI from receiving any new work, Wakeman said.

The Washington Post broke the news, reporting that the SBA took issue with work GTSI did as a subcontractor for small businesses that were the prime contractors on various government contracts.

The Post quoted from the missive:

"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."

"The letter mentions the first-source contract with DHS as an example, where GTSI is a subcontractor to a small business. SBA is saying the majority of the business actually went to GTSI, that GTSI had this scheme in place where GTSI employees had email addresses for the small business prime," Wakeman said. "Basically they're saying these primes were just fronts."

GTSI responded in an open letter Friday night, saying they would fight to restore their good name.

GTSI said that until the notification from SBA, "no government agency had made an allegation that GTSI had violated any law or regulations regarding this matter."

GTSI also had received no notification that the SBA was looking into its business. Generally companies would get some sort of indication, Wakeman said, something like a corrective action.

"You need to do 'X,Y,or Z'," Wakeman said. "Fix this or else. (SBA) just went straight to the 'or else'."

At the time, GTSI was also in the middle of an extremely contentious takeover bid by Eyak Technology. GTSI has a 30 percent stake in Eyak, which was founded in 2002 in part by GTSI.

Eyak announced Monday that it was dropping its bid to acquire GTSI amid the SBA allegations.

IBM once found itself in a similar situation; it was suspended by the Environmental Protection Agency in April of 2008 from also pursuing new government work. In that situation also, Federal Computer Week reported that it had received no prior warning. But the suspension was lifted just days later.

So what lies ahead for GTSI?

"My understanding is in 30 days, they'll be some sort of hearing on possibly going toward debarment," Wakeman said. "GTSI will be able to at least defend itself to SBA, and then we'll see where they go from there."

You can find more of Wakeman's analysis on the situation here.