The Small Business Administration on Friday ordered all companies that get preference for government contracts due to their status as “socially disadvantaged” minorities to provide detailed financial information to show they are not defrauding the program, The Daily Wire has learned.
The change represents a move to reevaluate a decades-old program that Washington insiders have long recognized as openly corrupt. The 8(a) program is one of the largest and oldest DEI initiatives in the country, affecting contracts at almost all federal agencies.
SBA administrator Kelly Loeffler said there is mounting evidence that minority contracts had become “a pass-through vehicle for rampant abuse and fraud,” especially after the Biden administration raised the target for contracts that are “set aside” for minorities from 5% to 15% of all contracting dollars.
“We’re committed to thoroughly reviewing every federal contract, contracting officer, and contractor — while working alongside federal law enforcement,” she said.
The records will shed light on the extent to which companies are subcontracting out the work to non-“disadvantaged” firms, while keeping a cut for serving as a middleman or “front” company. That would defeat the purpose of the program and result in higher prices for government services across the board.
Undercover journalist James O’Keefe caught employees from one such firm boasting that they did exactly that. O’Keefe Media Group published a video exposing ATI Government Solutions, an 8(a) firm based on Native American ownership that is run by whites. Anish Abraham, senior director at ATI Government Solutions, acknowledged that his company was a “pass-through” that got a $100 million contract, kept $65 million, and paid another firm $45 million to do the work.
Such reports “have raised questions about widespread misconduct within the 8(a) Business Development Program, adding to years of credible concerns that the program designed to serve ‘socially and economically disadvantaged’ businesses has become a vehicle for institutionalized abuse at taxpayer expense,” the SBA wrote to each of the 4,300 “disadvantaged” contractors.
The letter, exclusively obtained by The Daily Wire, requires that the companies upload their general ledger, bank statements, payroll register, subcontracting agreements, and other detailed internal information to the agency. Those who do not comply by January 5 risk losing their eligibility for contracts.
Most of the records are requested in the computer-friendly CSV format, which may suggest a plan to use artificial intelligence to help find “pass-through” abuse.
Loeffler said SBA’s top-to-bottom review of the so-called 8(a) minority contracting program, which has been in place since 1978, began in June after a criminal case revealed that one such firm had received more than half a billion dollars in USAID contracts after bribing a government official with $1 million.
The 8(a) program is also called “set-aside” contracting because contracts are set aside from open competition and can be “sole-sourced” to a specific company, without needing to show that it’s the best qualified or provides the best value.
Without the 8(a) program, the contracting officer would have had difficulty following through on the bribe because he would be tasked with running a competition and awarding the work to the firm that was objectively best.
Pleading guilty were USAID official Roderick Watson; Walter Barnes, founder of Vistant, a company whose business model was getting contracts based on “disadvantaged” status and pairing with other companies who did the work; and Darryl Britt, founder of 8(a) form Apprio Inc. Britt was, at the time of his guilty plea, a member of Carnegie Mellon University’s Business Board of Advisers.
A mark of how minority set-aside contractors routinely game the system is how small companies receive contracts for widely divergent fields of work — a sign that they are simply having others do it or hiring staff afterwards with little knowledge of the subject area. Apprio’s contracts with government agencies range from developing websites to medical care to human resources to “ebola efforts.”
Other USAID contracts to Vistant include a $15 million contract “to help protect cyberspace and communications network domains to block the spread of insecure information.” A $28 million USAID contract was for “lab institutional contractor – mega bridge contract,” and a $40 million contract was for “creation of the PDEX award.” A $204,000 contract was for a “senior advisor to the Belarus country director.”
Even after Barnes’s misconduct had been detected, a joint venture between Vistant and a “small business” operating out of a home, called CollaborateUp, was awarded potential work up to $800 million to solve “the root causes of irregular migration from Central America to the United States.”
Since the O’Keefe exposé of ATI Government Solutions, whose website openly advertised its main selling point as its ability to easily win government contracts through its affiliation with a Native American tribe, the SBA suspended the firm and a slew of others tied to its chief executive, Firmadge Crutchfield, who is white.
Tribe members emotionally said they were victims of the pass-through scheme, and that if a contracting program intended to steer work to Native Americans, that work should actually be done by Native Americans.
The minority set-aside program will need to be re-evaluated anyway because of recent court rulings blocking the government from doling out benefits based on race.
