Washington Post: GSA Failed to Pay Thousands of Small Government Contractors Since 2008

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Washington D.C., May 16, 2013 | comments
By J.D. Harrison, The Washington Post
May 16, 2013

An investigation by House lawmakers has revealed that the U.S. General Services Administration failed to fully pay thousands of small federal contractors in the past five years.

GSA officials confirmed the error, acknowledging that 1,334 government services firms had been shorted more than $3 million since 2008, the vast majority of them small businesses, because the agency neglected to fulfill a “guaranteed minimum payment” clause outlined in many of its contracts.

A spokeswoman for the agency declined to comment on why the payments were not issued in recent years but said officials will begin soon begin issuing payments to every company that was eligible but did not receive money, dating back to 2007.

The Republican-led House Small Business Comittee, which uncovered the oversight, plans to release a full report of its investigation on Thursday but shared preliminary details exclusively to The Washington Post.

“Contracting with small businesses is good for the economy and it’s good for the taxpayer because small companies bring cost-savings to the federal government,” Committee Chairman Sam Graves (R-Mo.) said in a statement. “But when federal agencies don’t live up to their end of the bargain, small businesses are discouraged from competing and taxpayers lose the benefits of government efficiency.”

The GSA offers an online catalog of government services known as the Multiple Awards Schedules (MAS) Program, from which other agencies can purchase an array of goods and services, from ink pens to construction services, usually at discounted prices. In order to be listed, contractors must undergo a rigorous and often expensive vetting process, and once approved, they must meet minimum government sales mandates in order to stay in the program ($25,000 in combined sales the first two years and $25,000 each year after that).

Meanwhile, the government has its own obligations in the agreement. Businesses that suffer through the vetting process and make it into the program are guaranteed at least $2,500 in orders from federal agencies.

“That minimum sales guarantee is essentially the government paying for the promise that the company makes to deliver the agreed-upon goods and services when ordered at agreed-upon prices,” Alan Chvotkin, executive vice president and counsel of the Professional Services Council, an industry group, said in an interview.

Chvotkin pointed out that the guarantees apply only to contractors who enter into indefinite, multiple-award programs, not those who compete for individual contracts.

So, if a company is removed from the MAS program for not hitting its minimum sales requirement (the $25,000) before it even reaches $2,500, the government must pay the difference. That is supposed to happen automatically when a firm is removed—but officials said they have not been sending those payments.

Graves’ team discovered the mistake last summer while looking into some the agency’s proposed changes to the structure of the MAS program last summer. Those changes would likely remove some contractors from the MAS program; however, the committee’s regulatory affairs team could not find where in its proposal the GSA had accounted for losses stemming from minimum payments issued to some of those ousted businesses.

It turns out, they weren’t factored in because they weren’t being paid.

Nearly a year later, GSA Federal Acquisition Services Commissioner Thomas Sharp confirmed “the problem” in a letter to Graves, noting that the agency owes $3,108,888 to small business contractors.

“Moving forward, GSA intends to administer clause I-FSS-106,” Sharp wrote, referring to the minium payments provision that has been in existence in its current form since 2003. GSA officials also plan to start paying the firms they shorted in the coming months.

“If a contract has been terminated, and the company is no longer in the program, they should be receiving the money,” said Chvotkin. “It’s a contractual right for those businesses, and it’s regrettable that GSA has been holding back on funds legitimately owed to contractors.”

The findings of the investigation add a new element of controversy for an administration already reeling from several scandals. The White House has been defending its response to the attacks in Benghazi, the Department of Justice’s seizure of AP phone records, and the Internal Revenue Service’s targeting of conservative groups.


 

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