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Editorial: Fixes needed in small biz program

Jul. 7, 2013 - 01:07PM   |  
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A recent investigation by the House Oversight and Government Reform Committee into apparent abuses of the federal small business contracting produced some troubling revelations.

The committee investigation focused on contracts potentially worth hundreds of millions granted to a service-disabled, veteran-owned small business called Strong Castle.

Although it appears some rules were violated — Strong Castle had personal ties to a senior procurement official at IRS — just as alarming was the fact that other apparent abuses were entirely in accordance with regulation and law.

Strong Castle is designated as a service-disabled, veteran-owned small business on the grounds that the company’s owner, Braulio Castillo, has a 30 percent disability rating for an ankle injury suffered while playing football at a military prep school decades ago. Under rules set by the Department of Veterans Affairs, that’s all he needed.

That’s a slap in the face to any veteran who ever served, let alone those wounded in combat. But it’s not Castillo’s fault that VA can’t distinguish between real service and a failed attempt at a military career.

Just as troubling are the contracting rules that allowed Strong Castle to use its service-disabled, veteran-owned business status to win a deal worth up to $267 million from IRS and then subcontract 98 percent of the funds and at least that much of the work to IBM.

The deal doesn’t violate the letter of the law, but it clearly undermines its intent. According to the committee’s investigation report, “it is not unusual for IRS to award a large sum contract to a small disadvantaged business, such as Strong Castle, only to have the bulk of the funds go to a large computer manufacturer, such as IBM or Hewlett Packard.”

In fact, such practices are common throughout government.

What’s to be done? Clearly, the rules must be tightened up. If there’s a loophole in any of them, someone will take advantage.

VA must revise the rules for what constitutes a service-disabled, veteran-owned business to require actual active duty or reserve service, not just a disability rating.

And the Small Business Administration must revise its rules to ensure small businesses do not merely act as front companies to win contracts for which giant corporations really deliver the goods and services. Helping veteran-, minority- and woman-owned businesses crack the federal marketplace is of no intrinsic value unless those businesses are real, viable competitors in the marketplace.

To ensure they are, such deals should

require a minimum percentage of the work be performed by small business primes on their own, along with maximum percentages for

how much money can be passed through directly to larger subcontractors. Rules can vary by industry but must be clearly outlined in the request for proposals at the start of contracting process.

America should do all it can to help small, disadvantaged businesses prosper — but not if doing so merely puts a minority, female or veteran face on a deal that really benefits top-tier government suppliers.

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