MicroTech grows too big for a technology contract, but the work stays in the family

November 13, 2013

In 2011, MicroTechnologies, one of the nation’s fastest-growing small federal contractors, had a problem. It would soon be too big to continue to qualify for a certain contracting program reserved for small firms owned by service-disabled veterans.

The contract, called VETS, for Veterans Technology Services, allowed MicroTech to sell a wide variety of technology and services to agencies across the federal government. MicroTech had received orders worth more than $57 million.

MicroTech decided to transfer the contract to another small, service-disabled-veteran-owned firm, a two-year-old start-up called OBXtek. In the process, the contract stayed in the family. The head of MicroTech is Anthony R. Jimenez, a retired Army lieutenant colonel and former military contracting specialist. His son, Anthony Jimenez Jr., is an owner of OBXtek and its chief technology officer. MicroTech’s general counsel, Aaron Drabkin, is an owner of OBXtek and served without pay as secretary and vice president of the company. OBXtek’s founder and chief executive, Bruce “Ed” Jesson, conceived of the company while working for the elder Jimenez at MicroTech.

Federal contracting rules require that small firms seeking work set aside for service-disabled veterans must not be overly reliant upon other companies through family ties, location, personnel relationships or economic interests. This is intended to prevent smaller firms from acting as fronts for or appendages to larger firms.

OBXtek and MicroTechnologies (MicroTech) are two entirely separate companies and in no way are they affiliated,” Jesson said in a statement. “Each has its own independent senior management team and Board of Directors — and neither company has any involvement or influence over the other regarding our business activities, operations, and business development.”

Jesson is a former Army lieutenant colonel who retired as a contracting specialist in 1987. He said he worked for the elder Jimenez as a consultant for eight months in 2008 and 2009 after MicroTech acquired his previous company.

Jesson started OBXtek in April 2009, shortly after he had left MicroTech and had been certified by the government as a service-disabled veteran. He said his disability was related to exposure to Agent Orange during combat service in the Vietnam War.

His main partner is Jimenez Jr. When OBXtek was formed, Jimenez Jr. was working as a project manager at MicroTech. He took a 37.5 percent share in the start-up, according to documents obtained by The Washington Post. Drabkin had 5 percent and Jesson had the remaining 57.5 percent.

Jesson said he took steps to protect against conflicts of interests between his firm and MicroTech. “Anthony agreed he would not ‘talk shop’ with his father and would not share any information about OBXtek operations,” Jesson said later in an affidavit submitted as part of a contracting dispute and obtained by The Post.

Drabkin also said he took care to avoid conflicts of interest. “I recused myself from activities between MicroTech and OBXtek,” he said in a statement. He resigned as secretary and vice president of OBXtek on Nov. 1, 2011.

“I have been only a passive investor since my resignation from the board,” he said.

OBXtek operates on Boone Boulevard in Tysons Corner, in an office complex where MicroTech also rents space. Subcontracting work from MicroTech provided OBXtek with an average of 75 percent of the firm’s revenue from 2009 to 2011, documents show.

In the fall of 2011, OBXtek got a break — from MicroTech.

On Nov. 16, Drabkin, as MicroTech’s general counsel, submitted paperwork to the government saying MicroTech had grown too large to continue qualifying as small for the VETS program, which was reserved for small service-disabled firms with annual revenue of $25 million or less.

The VETS contract would effectively disappear unless MicroTech transferred it to another firm.

On Nov. 21, OBXtek struck a deal to take on the VETS contract from MicroTech, Jesson said.

OBXtek would pay MicroTech $150,000 for the contract plus a running stream of revenue: 7.5 percent of all the money earned on VETS deals originally won by MicroTech.

Jesson said in his statement that “out of an abundance of caution — and to avoid even the slightest appearance of a possible conflict of interest — I did not discuss any aspect of OBXtek’s VETS contract acquisition with Mr. Drabkin or MicroTech’s owner, Anthony Jimenez, prior to the deal closing.” In his affidavit, Jesson said he negotiated with another official at MicroTech.

OBXtek needed a larger workforce to fulfill the unfinished work that came with the VETS contracts. OBXtek again turned to MicroTech.

In a statement, Jesson said that “to avoid any potential disruption of services to our client — and to maximize efficiencies for the U.S. government — we did recruit some MicroTech employees into full-time OBXtek positions.” Jesson said this is a common and widely accepted practice. Firms that acquire service contracts are required to first offer the jobs to workers at the previous company.

The apparent ties between MicroTech and OBXtek bothered a competitor. Last November, that competitor, ITility, formally protested that OBXtek was not eligible for a certain small contract, because it was affiliated too closely with MicroTech.

If the SBA determines that a small firm is affiliated with a larger firm, it can affect both companies’ ability to get set-aside contracts by forcing them to count their combined revenue when trying to meet the size limits for small-business contracts. Under the rules, such affiliation can take the form of personal relationships, physical location or closely aligned financial interests.

An SBA official determined that OBXtek was affiliated with MicroTech because of its “economic dependence” on the larger firm.

OBXtek appealed to an administrative judge at the SBA, saying that by the end of last year, its revenue related to subcontracts with MicroTech had dropped to “less than 20 percent.”

ITility argued that the affiliation went beyond finances into the family and professional ties between OBXtek and MicroTech. But the judge said that argument should have been offered earlier in the process. He ruled that OBXtek was no longer economically dependent on MicroTech and that the two companies were not affiliated.

Since acquiring VETS, OBXtek has received more than $30 million in orders, federal records show.

In August, a trade magazine named OBXtek the government’s fastest-growing small contractor, with 158 employees. It has received contracts worth $63 million since its inception, federal records show.

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