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Contractor GTSI removes CEO, general counsel to end federal-work suspension

By Robert O'Harrow Jr.
Washington Post Staff Writer
Tuesday, October 19, 2010; 2:15 PM

A prominent federal contractor on Tuesday agreed to remove its chief executive and general counsel and turn over reams of internal business documents as part of a deal to end a suspension from all government business.

The Fairfax County-based GTSI Corp. was suspended from federal work by the U.S. Small Business Administration on Oct. 1, after agency officials said they found evidence that "GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors," according to a suspension letter.

The move was the result of an internal SBA examination of GTSI activity over the past few years. It came 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 was called EyakTek, and the other was a small business involved in a $3 billion contract at the Department of Homeland Security called First Source.

In an internal GTSI e-mail, a company vice president said one of its small-business partners was "very open to the concept of GTSI doing ALL the work" on a contract. Another document called for GTSI to receive 99.5 percent of the revenue, even though it was a subcontractor to the small business.

Today, after more than two weeks of silence, GTSI and the SBA announced they had reached a deal that would allow the company to continue doing business with the government, which has accounted for about 90 percent of its revenue, directly or indirectly, in recent years.

"The actions taken today by SBA, made in light of substantial management changes in the company, impose strict conditions and monitoring on GTSI aimed at protecting taxpayer and government interests, pending the completion of the investigation into the company's business practices," said agency spokesman Jonathan Swain. "Any violation of this Agreement will be cause to re-impose the suspension."

In an announcement, GTSI said its board had named Sandra Gillespie, a senior vice president for marketing, sales, services and supply, and Peter Whitfield, a senior vice president and chief financial officer, to serve as co-chief executives while the company searches for a new leader.

"Now that the SBA has lifted the suspension we are looking forward to getting back to helping our customers meet their mission," said Gillespie. "As a result of the action taken by the SBA, we will be enhancing our compliance activities and implementing a rigorous process to regularly report to the SBA on our actions."

"For nearly three decades, government has come to rely on GTSI, and our employees are ready to get back to work and prove that trust was not misplaced," she said.

SBA officials said that the lifting of the suspension allows GTSI to keep working for the government, while also sending a clear signal that the agency is serious about cracking down on fraud, waste and abuse of small-business contracts.

The agreement will enable the agency to continue conducting a broader probe into the sometimes obscure world of small-business contracting.

As part of the agreement, GTSI has agreed to provide a wide array of internal documents relating to its government business. Those documents could include e-mail, teaming agreements, subcontracts and many other materials that draw other businesses into the SBA probe, officials said.

The agreement, signed Tuesday, requires that GTSI president and chief executive Scott W. Friedlander and vice president and general counsel Charles E. De Leon "will no longer be employed by GTSI" and cannot have "any actual, direct or indirect control over the Company."

Three other executives - a vice president of civilian sales, a senior sales manager and a program manager - will be suspended until the SBA investigation of the company's activities is complete. All three executives were directly involved in the questioned Homeland Security business.

In addition, GTSI has agreed to hire an independent monitor who will have broad authority to ensure compliance with the agreement, which includes limits on the company's involvement in contracts set aside for small businesses. GTSI agreed to stop working with small businesses as a subcontractor, through joint ventures or in the SBA's "mentor-protege" program.

The SBA agreement is set to last until 90 days after the end of the agency's investigation, but no later than Oct. 19, 2013.

GTSI was founded in 1983. Operating in Herndon, it has experienced substantial growth largely as a result of federal contracts. It reported revenue of $762 million last year from the sale of a variety of information technology products and a variety of services. The company said it had 615 employees last year, according to its most recent annual report. That number has dropped to about 525, the company said.

GTSI was ranked 49th on trade magazine Washington Technology's list of Top 100 government contractors last year.

Despite its growth, GTSI has for years maintained a small-business status on some older contracts under federal rules. But the company anticipated losing direct access to set-aside deals as a consequence of its growth. Several years ago, the company disclosed a plan to "mitigate any potential adverse affect on our sales from the loss of our small business status" by developing "strategic relationships with small businesses that benefit from the small business benefits," according to a filing with the SEC.

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