Wednesday, July 30, 2008
Blackwater Gets "Small Business" Set-Aside Contracts
RALEIGH, North Carolina: Private security contractor Blackwater
Worldwide and its affiliates may have misrepresented their size to win
more than $100 million in government contracts set aside for small
businesses, federal auditors said Monday.
A report by the Small Business Administration' s Office of Inspector
General questioned the agency's decision to approve Blackwater as a
small business even though there were signs the company could be much
larger than executives claimed.
In fiscal 2005 through 2007, Blackwater and affiliates won 32 small
business contracts worth more than $2.1 million even though the work was restricted to companies with revenue of $6.5 million or less, according to the audit. One contract had a revenue ceiling of $750,000. Meanwhile, Blackwater's airline affiliate Presidential Airways won more than $107 million in contracts set aside for companies with revenues of less than $25.5 million or fewer than 1,500 employees.
The audit questioned whether the Moyock-based company, which built its name protecting U.S. diplomats on the volatile streets of Baghdad, could
meet either of those limits. The company said last week that it is on track to reach annual revenues of $1 billion per year by 2010.
Blackwater questioned the factual accounting of the audit, noting that
one contract on the list was awarded to a small company years before
Blackwater purchased it.
"The failure to conduct a meaningful inquiry into the facts or review
any of the relevant bid submission paperwork before making such reckless allegations should be disappointing to all," said Andy Howell,
Blackwater's general counsel, in a release to The Associated Press.
"Blackwater is looking forward to correcting the record."
Auditors urged the SBA to review whether Blackwater's 29 affiliated
entities should have any contracts, and they referred all previously
awarded work to agencies "for possible action."
Without drawing any conclusions, the audit said, "SBA may want to
examine its size decision to confirm whether it made the proper finding
and determine whether it is appropriate for Blackwater affiliates to
continue receiving small business set aside contracts."
Auditors focused particular attention on the $107 million in work
awarded to Presidential Airways, saying Blackwater may have
misrepresented its revenue for those contracts. Auditors also questioned
the math behind the claim that it had fewer than 1,500 employees.
Several competing companies had filed a complaint in 2006 saying that
Presidential was too large for a small business contract for helicopter
services. Presidential claimed the Blackwater affiliates had a total of
only 715 employees. An additional 1,000 workers were contractors, not employees, the company claimed.
The SBA had concluded that Blackwater did not supervise the workers in
the field ? a key factor in IRS rules on what constitutes a contractor
or employee ? because they were under Department of State supervision.
But the audit found that Blackwater contracts indicate the company was
required to work with the State Department to establish shift schedules,
provide reports, and ensure security personnel compliance.
"In order to be able to fulfill its obligations under the ... contract,
it appears that Blackwater was required to do more than merely hire and
train the security professionals and provide them to the (State
Department), " the audit says.
Auditors were uncertain whether Blackwater was overseeing the operations of their guards.
Blackwater spokeswoman Anne Tyrrell said in a release that "expert
accounting and outside legal counsel have determined that Blackwater's
classification of security personnel as independent contractors is
reasonable, correct and legally protected."
Rep. Henry Waxman, the Democratic chairman of the House Oversight and Government Reform Committee, had asked the Small Business Administration to investigate whether Blackwater had complied with small business laws. He's also asked the IRS to investigate whether the company has sidestepped tax laws by defining its guards as contractors rather than employees.
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*Staffers at the New York Times' Baghdad bureau claim Blackwater bodyguards shot Hentish, the Times' resident canine, bringing all new meaning to the rogue firm's pawprint logo.
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