8(a) Fraud: Proposal Claimed Past Performance Of Fake NASA Contract

A proposal submitted on behalf of an 8(a) company claimed that the company had performed a $3 million NASA contract even though no such contract existed, according to a recent report issued by the SBA Office of Inspector General.  As alleged in the SBA OIG report, the same honesty-challenged 8(a) company claimed to have 33 employees, even though it never had more than two.

Perhaps it is little wonder that the company in question is alleged to have passed through nearly 100% of its work on several 8(a) set-asides to its non-8(a) subcontractor.

The SBA OIG report examined SBA 8(a) sole source contracts awarded to an 8(a) company named Isika Technologies, Inc., or iTechnologies.  According to iTechnologies’ president, the pass-through scheme began when he was approached by a company named The Look Enterprises, or TLE.  At the time, iTechnologies had only one employee, and the company’s work consisted of IT consulting services.

TLE suggested that the companies team on 8(a) contracts for IT hardware and software procurement.  iTechnologies agreed, even though it lacked the knowledge, resources and relationships necessary to perform such work.

TLE subsequently prepared and submitted a proposal on behalf of the team.  The proposal included a number of factual misstatements (to put it mildly).  For instance, the proposal stated that iTechnologies had performed a $3 million contract for NASA.  In fact, iTechnologies had never performed any federal prime contract.  The proposal also claimed that iTechnologies had 33 employees, seven of whom would be dedicated to the contract in question.  In reality, iTechnologies never had more than two employees.

Based in part on these fabrications, the SBA awarded iTechnologies 8(a) sole source contracts amounting to $3.3 million.  However, throughout the performance period of the contracts awarded to the team, TLE performed nearly all of the work.  In order to prevent detection, the companies pretended that TLE’s employees were employed by iTechnologies.  Ultimately, iTechnologies claimed to have received only $32,000, with the remainder of the $3.3 million going to TLE.

The SBA OIG recommended that the SBA initiate debarment proceedings against iTechnologies and TLE.  Surprisingly, however, the SBA OIG did not mention criminal penalties or False Claims Act liability.

The SBA OIG also faulted the SBA for not detecting the procurement fraud.  The SBA OIG noted, for example, that a simple procurement database search for the NASA contract revealed that no such contract number existed.  SBA OIG stated, “[d]espite iTechnologies’ misrepresentations, SBA contracting personnel had a duty to perform due diligence in reviewing iTechnologies’ proposal and responses to follow-up questions.  Had SBA’s contracting personnel performed its due diligence, they could have determined that iTechnologies falsified its responses and could not execute the SBA’s contract requirements.”  The SBA OIG made recommendations for improved SBA contract oversight.

The SBA OIG report on iTechnologies shows a rather startling lack of communication between the SBA’s 8(a) program office and its contracting office.  The SBA’s 8(a) program office and iTechnologies’ SBA representatives were no doubt well-aware that iTechnologies was a one-man IT consulting firm without a single federal prime contract to its name.  Had the contracting office contacted the appropriate 8(a) officials, the contracting office would have quickly learned that iTechnologies did not have 33 employees or any prime contract experience.

Of course, the most startling thing about the iTechnologies case is the nature of the allegations themselves.  If true, they represent a blatant case of procurement fraud, against the very agency tasked with overseeing the  8(a) program.  Let’s hope that the perpetrators are punished to the fullest extent of the law, both because it is richly deserved, and to send a strong message to anyone else who might be thinking about abusing the 8(a) program in a similar fashion.

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