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OHA and SBA Take Sides With Small Business Crusader In His Fight To...



The failure of government contracting officials to follow the regulations and prevent 'large' companies from abusing the government's 'set-aside' program at first frustrated him. The practice became an adversity that Raul Espinosa was determined to overcome. These circumstances have made him into an effective small business crusader leading a national effort to change the way the government handles contracting abuse. For over a decade, Espinosa has been advising advocacy organizations and small businesses on government contracting issues as CEO of FitNet, a government purchasing group. Lately, however, policy making officials have been paying attention to his advice.



Espinosa knows that the SBA's 'size standards' needs major changes to become both fair and effective. "Size Standards has become a bureocracy; penalties aren't applied and there's no enforcement power so the violators have nothing to fear when they get caught," he said.



Congress, through the Small Business Act, established the Government Set-Aside program to reserve 23 percent of all government purchases or over $75 billion for small businesses. Large companies, however, have been illegally siphoning a large portion of these contracts often with the apparent sanctioning of the respective contracting officials. Although, there is a SBA protest mechanism in place, Espinosa says, "the current 'size protest' relies, for example, on the 'IRS rule,' absolutely the worse possible tool to count employees and determine the size of the business."Additionally, he claims there are loopholes in the system that allows affiliated companies, for example, to easily circumvent the regulations. What's worse is the fact that 'size protest decisions' are often ignored by government agencies. He said, "You might win the 'size protest', but you can't claim the contract because the agency allowed delivery to take place and what's worse, the penalties for the violations aren't enforced."



The Government's Office of Hearing and Appeals (OHA) recently confirmed and vindicated Espinosa's claims of abusive contracting behavior on the part of the Air Force in a test case. Federal Judge Christopher Holleman in his (SIZ-2005-05-09-22) ruling said, "The Air Force Actions here are negligent at best, at worst, deliberate attempts to mislead SBA and this Office."



OHA remanded the case to the SBA which, thanks to Espinosa's intervention, has just ruled (6-2005-039) that the Corps Group, Inc., was affiliated with Precor, Inc., a large business 8211; in violation of the Federal Acquisition Regulations (FAR) - to pursue set-aside contracts. "There may be millions lost that could have gone through small and minority businesses through this arrangement since 1998," Espinosa said.



Raul is no stranger to adversity. When he was 14 year of age, his parents made the greatest sacrifice of their lives to save him from communism, by shipping him, all alone, to the US from his native Cuba so he could live in freedom and achieve the American dream. This famous exodus, known as the Pedro Pan, or the Peter Pan Exodus, brought to America in excess of 14,000 children all of whom had to overcome adversity to succeed in America. The best known child from the group is current US Senator Mel Martinez.



It didn't take long for the Cuban American to overcome the odds and succeed in his new country. His athletic abilities and determination to climb the ladder of success helped him compete in collegiate sports and not only earn a Masters degree in International Business from The University of Texas, but also obtain envious positions working for some of the country's most powerful and influential leaders. His resume demonstrates that hard work, determination and loyalty pays off. His superiors have included David Rockefeller, Chairman of the Chase Manhattan Bank and three former US Presidents!



Espinosa has used his negotiating and service-oriented skills, which he claims he learned from his former mentors in public office, to bring together twelve advocacy organizations into a major coalition to seek changes in the government set-aside program. Espinosa said, "The goal of the coalition is to convince policy making officials that it is time to begin applying the penalties on the books and make sure the regulations are enforced."



The coalition which supported his test case at OHA and his challenge against Precor, Inc., brought together advocacy organizations 'sup2; and leaders with different views on how to address the SBA challenges, but one central goal: to end the abuse of the government set-aside program. It included such advocates as Anthony Robinson, Esq., of MBELDEF, Lloyd Chapman of ASBL and Roger Campos of MBRT just to cite a few.



The SBA has finished a tour of 11 cities designed to seek public comments aimed at fixing their 'size-standards' and determine which companies will receive legitimate small business status for such things as government contracts. "I am convinced that the effort to fix 'size-standards' must also address 'size protests', 'penalties and their enforcement' plus 'dispute resolutions."



Espinosa uses this analogy, "Look, fixing 'size-standards' by only looking at size issues is like attempting to fix a flat tire on a car whose other three tires have no treads left!



"Perhaps the biggest mistake of the entire system," Espinosa claims, "is that there is neither an enforcement mechanism nor a fair dispute resolution element in place as part of the system." He added, "these would apply sanctions and would fairly settle disputes."



Espinosa suggests that the easiest and fastest way for the government to deter abuse is to start debarring violators. It will scare the large companies, which have been purposely abusing the system. Al Krachman, Esq., a Partner in the Blank Rome Law Firm, supports Espinosa's approach. In a June Article in Contract Management,'sup3; Krachman details the approach. "By making violations of the SBA actionable as a priority grounds for suspension or debarment, a significant new deterrent would likely impact the misconduct," Krachman said.



When prompted for examples of Air Force abuse 4, Espinosa cited the Hanscom's AFB's award to Precor, Inc., a large corporation which was the action which prompted Espinosa to bring the test case to OHA.    
Judge Holleman said, "The Air Force simply ignored the set-aside restriction in its own solicitation and awarded a contract set aside for small business to an admittedly large firm."



Espinosa claims the Air Force contracting problems with small businesses is huge and goes far beyond the case at Hanscom AFB. (see attached report)



According to Espinosa, another major issue, which must be addressed, involves changing the attitude - primarily in Air Force circles 8211; of those who initiate purchasing requests. "End users in the military think they can get any brand-name they specify, for example, regardless of the regulations." He added, "The problem occurs when the contracting officer doesn't question an end-user justification for a higher price offer8211; especially if the end user's decision is challenged."



"Rigging specifications to favor a particular product or vendor in a solicitation to avoid fair competition is another unlawful practice which is pervasive in Air Force contracting," Espinosa claims. "It only takes, but a small change in a line item to unethically keep out potential competitors." In a recent solicitation at Wright Patterson AFB, Espinosa said, "Restrictive language was added, on purpose, to an original sole-source solicitation after the 'sole source status' had been eliminated to still favor the original sole source vendor," he said.    




He added, "The Office of Federal Procurement Policy (OFPP) and/or the Secretary of the Air Force, could stop such practices through a procurement directive and a report card to keep track of contracting disputes and force a lost of future funding to contracting units with such cases on their record." Espinosa believes the contracting community must be held accountable for their decisions.



Espinosa is committed to ensure fairness in the enforcement of government regulations and believes that entrepreneurs can supply most of the answers to the challenges facing the Small Business Act. He has authored two small business initiatives, which would rely on private industry, not the government, to supply solutions and make sure the Government Set-Aside Program works as Congress intended. "The plan could not only save the Federal government billions of dollars, but it will guarantee that legitimate small businesses will have easier and faster access to the $75 billion in government procurement that is lawfully theirs," he said.

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REFERENCES



(1) Proof of contracting abuse is detailed on the Eagle Eye Report (http://www.sba.gov/advo/press/04-41.html) and in four (4) separate Inspector General (IG) reports (http://www.sba.gov/ig/audits.html#med). Additionally, contracting abuse is also referenced in a report by the Center for Public Integrity (http://www.publicintegrity.org/pns/report.aspxaid=387,)

(2) See attached list of Members of the Coalition to bring fairness to Air Force procurement

(3) The link to the article is http://www.ncmahq.org/publications/cm/docs/CM_June05p30.pdf

(4) See Attached Report on Contracting Abuse by the Air Force

(5) See Attached Background on FitNet Purchasing Alliance and its founder.

(6) See Attached Picture of Raul Espinosa








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