GSA Report: Be Truthful about Small Business Certifications

The federal small business representation system relies in some part on self-certification and in some part on review by the Small Business Administration (SBA) and protests by competitors. The System for Award Management (SAM) is one key part of the federal procurement apparatus. Small businesses looking to take advantage of SBA’s socioeconomic programs must be registered in SAM, and crucially, must maintain up-to-date information in the system. Failure to do so can carry severe consequences, ranging from suspension and disbarment to civil and/or criminal penalties, including massive fines and even imprisonment. We’ve written before about some of the confusion contractors may have regarding self-reporting in SAM.

A recent General Services Administration (GSA) Office of Inspector General (OIG) report is a reminder to federal contractors about the importance of being accurate in representing small business status. It details several investigations into small business misrepresentations, and reminds contractors of the severe penalties that can result from misrepresentation. In this post we’ll highlight the examples provided by GSA OIG to show just what is at stake when a small business fails to update (or knowingly misrepresents) their status, and offer some clarification of the Federal Acquisition Regulations to help you avoid similarly extreme penalties.

The OIG report highlights a number of situations that federal contractors should take note of and look to avoid. While we at SmallGovCon often talk about the protest process as a way for competitors and agencies to enforce the small business system, agencies can also investigate potential misrepresentations by taking advantage of statutes like the False Claims Act. Here are a few examples to remind contractors to stay on the straight and narrow.

Former Government Contractor Receives 15-Month Prison Sentence

One would like to think it goes without saying that defrauding the government is not a wise strategy for long-term success (or staying out of prison). Part of the reason the penalties for misrepresentation are so high is to combat the temptation to abuse the trust inherent in the system. Some contractors seem to think the risk worthwhile however, and the results can be ugly. Jonathan Walker found this out the hard way when a GSA OIG investigation determined that he had fraudulently represented his company, Walker Investment Properties, as a service-disabled veteran owned small business (SDVOSB) in SAM. He proceeded to use that (mis)representation to secure two Department of Defense contracts valued at over $1.9 million. Walker had not been disabled from military service (in fact, he never served in the military at all) and obviously was therefore not qualified for contracts set aside for SDVOBs. He was indicted by a federal grand jury on charges of wire fraud and making false statements, and plead guilty to wire fraud on July 11, 2023. Three months later he was sentenced to 15 months in prison, 1-year supervised release, $72,000 in restitution, and a $10,000 fine.

Note that this representation involved the old, self-reported system of SDVOSB certification. As we’ve discussed, the SDVOSB program no longer allows self-certification.

Company Ordered to Pay $3.9 Million Following Small Business Status Misrepresentation

This situation illustrates how a company that initially qualified for a certification risks massive consequences when it fails to update its SAM profile following big changes to the business. GSA OIG’s investigation resulted in Planned Systems International, Inc. (PSI) and its subsidiary, QuarterLine Consulting Services, LLC agreeing to pay $3.9 million. This payment resolved allegations that QuarterLine misrepresented its women-owned small business (WOSB) status to obtain a task order they were ineligible to receive on an indefinite delivery, indefinite quantity (IDIQ), multiple-award contract to provide physician, nursing, and ancillary services at military treatment facilities. At the time of the IDIQ award, QuarterLine was a WOSB and eligible to compete for set-aside task orders. However, QuarterLine was later acquired by PSI, which caused QuarterLine to forfeit its WOSB status.

Had QuarterLine been diligent enough to adhere to FAR 4.1201 and its missive to keep SAM representation “current, accurate, and complete,” it may have avoided a several-million-dollar penalty. Instead, it failed to update its certifications in SAM as required. QuarterLine subsequently submitted a proposal for a task order which falsely represented that it was a WOSB and that its SAM representations were current, complete, and accurate. Ultimately, on January 26, 2024, PSI and QuarterLine agreed to pay $3.9 million dollars to resolve the allegations that they misrepresented their WOSB status.

Company Agrees to Pay $1.75 Million to Settle Civil Fraud Allegations

The Pavion Company (Pavion) agreed to pay $1.75 million to settle allegations of civil fraud, specifically that Pavion and its subsidiaries improperly obtained government contracts set aside for small businesses. Pavion ceased to qualify as a small business after its predecessor company was acquired in 2016 by the private equity firm Tower Arch Capital. After its acquisition, Pavion, including two of its subsequently acquired subsidiaries, falsely certified themselves as qualified small businesses in SAM. GSA OIG investigated this case alongside just about every three-letter federal agency you can think of, and the result was a cool $1.75 million penalty.

The list of agencies involved in the investigation included DCIS, AFOSI, HHS OIG, Army CID, Naval Criminal Investigative Service (NCIS), DOJ OIG, Department of the Interior (DOI) OIG, Treasury Inspector General for Tax Administration, VA OIG, Department of Commerce (Commerce) OIG, DOE OIG, Coast Guard Investigative Service (CGIS), Department of Transportation OIG, Federal Housing Finance Agency, Department of State OIG, National Transportation Safety Board, Occupational Safety and Health Review Commission, and Department of Homeland Security OIG.

As private equity moves into investments in federal contractors, it is important to stay mindful of the duty to stay current on small business certifications in SAM.

FAR Requirements and When to Update Your SAM Profile

As these recent examples hopefully indicate, the risk one takes in waiting to update a SAM profile following changes in business is not worth whatever ostensible benefit might be gained through that kind of misrepresentation. These are obviously extreme examples, in which the contractors in question allegedly made these misrepresentations knowingly, in hopes of getting away with violating federal regulations. Even if a misrepresentation is made through an honest mistake, however, the consequences can be dire should the government investigate.

One common misconception contractors sometimes labor under is the belief that SAM registrations need only be updated on an annual basis. This yearly standard is the minimum acceptable, of a business that has not experienced any changes deemed noteworthy by SBA, but it will not shield a business that has grown, or changed ownership, or acquired a new subsidiary, or any number of changes that may affect the business’s certifications. FAR 4.1201 requires offerors and quoters to complete annual representations and certifications in SAM, but in addition it states:

All registrants are required to review and update the representations and certifications submitted to SAM as necessary, but at least annually, to ensure they are kept current, accurate, and complete. The representations and certifications are effective until one year from date of submission or update to SAM.

Obviously, the required information in a business’s SAM profile varies depending on the certifications claimed or applied for, but when in doubt, the best policy is to update your SAM registration any time a change in your business occurs. There are also requirements to update SBA for various socieconomic programs. If you aren’t sure about a recent change to your business and whether you should update your SAM registration (or other government databases) to reflect it, consult counsel, and err on the side of caution. No one wants to wind up in a GSA OIG semiannual report.

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