By Robert O'Harrow Jr.
Washington Post Staff Writer
Friday, November 19, 2010; 12:32 AM
Federal authorities suspended two Department of Homeland Security contractors Thursday, saying they have evidence that the firms worked with a large company to "defraud the Government" by passing on work and revenues from a contract intended to benefit small businesses.
The action is part of an expanding investigation by the Small Business Administration into allegations that small companies are being used by large companies to obtain small-business set-aside contracts.
The suspensions comes one month after the SBA accused Northern Virginia-based GTSI Corp., of being "an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors."
The two newly suspended companies, EG Solutions and MultimaxArray Firstsource, have both used GTSI at various times as a subcontractor on First Source, a $3 billion contracting program for technology and services provided to DHS.
From 2007 through July, EG Solutions landed more than $166 million in work under First Source. MultimaxArray received $67 million.
In letters to the suspended firms, the SBA said that "the subcontractor in fact performed most if not all of the work required." The letters did not name GTSI.
"I also find that there is adequate evidence that [EG Solutions and MultimaxArray] committed fraud or a criminal offense," said the letters signed by Michael A. Chodos, the agency's suspension and debarment official.
Brian Leung, an executive with MultimaxArray, said his firm "is disappointed with the SBA's decision and believes all our actions were appropriate. We intend to fully cooperate with the SBA's investigation."
In a statement, Eyak Corp., the parent of EG Solutions, said that it is committed to "following the letter of the law regarding all SBA rules and regulations."
In a statement, SBA Administrator Karen Mills said the agency has "no tolerance for waste, fraud and abuse in small business government contracting. Federal government contracting and business development programs provide critical opportunities for small business, but can only be effective if you hold bad actors accountable."
The suspensions are part of an unprecedented enforcement effort by the SBA.
Two top GTSI executives resigned and three others were put on leave indefinitely as part of a settlement agreement that has enabled GTSI to resume receiving federal contracts.
The SBA action follows a Washington Post investigation of abuses in the federal government's small business programs for Alaska native corporations. The Post detailed the relationship between GTSI, EG Solutions and MultimaxArray. GTSI was part owner of EG Solutions with Eyak Technology, an Alaska native corporate subsidiary.
Court filings and internal DHS documents obtained by The Post show that department officials have received numerous reports over a two-year period questioning whether EG Solutions and MultimaxArray were improperly passing business along to GTSI.
DHS officials took no action against those firms, even after the SBA noted in its Oct. 1 suspension of GTSI that "there is evidence that GTSI's prime contractors had little or no involvement in the performance of the contracts, in direct contravention of applicable laws and regulations."
Three days later, DHS issued a statement saying: "At this time we have no information to suggest any misconduct relating to the First Source program."
The warnings started in September 2008, when another First Source contractor accused MultimaxArray of working as a front for GTSI. But a DHS contracting official actively downplayed the concerns in a letter to the SBA, which was responsible for assessing the protest.
The protester's evidence "proves nothing other than GTSI is playing a role as a source for the computer equipment that will be purchased under the awarded delivery order," contracting officer Laura Zuchowski wrote in a Sept. 26, 2008, letter to the SBA.
Last year, Mae Kim, a contracting official responsible for overseeing First Source, voiced concerns that EG Solutions and MultimaxArray had engaged in "suspicious" activity on the contract, documents show.
"I want them to play fair," Kim wrote in an Oct. 28, 2009, e-mail seeking guidance from Kevin Boshears, chief of the department's small business procurement program.
Boshears and other DHS contracting officials declined to be interviewed, but officials have previously said the department reviewed the relationships between the firms and "ensured that all prime contractors were properly performing their role."