A Fortune 1000 company's subsidiary has agreed to pay the federal government $1 million to settle allegations that it falsely represented itself as a small business for inclusion on a General Services Administration contracting schedule, the Small Business Administration announced Tuesday.
The government brought its complaint under the False Claims Act against Insight Public Sector, a Tempe, Ariz.-based company specializing in information technology products and services and formerly known as Comark Government and Education Services.
The SBA and GSA inspectors general, together with the Justice Department, conducted a two-year investigation into the company at the urging of American Small Business League president Lloyd Chapman, said Glenn Harris, an SBA spokesman. The investigation found that the company had misrepresented its size on a 1996 application for inclusion in GSA's Multiple Award Schedule, and continued to operate under that designation when it changed names in 2002.
The $1 million fine was "a good settlement for the government," Harris said. He did not know how much business the company had received as a result of the misrepresentation.
Justice Department spokesman Charles Miller also declined to give the value of orders placed under the false designation. He said settlements under the False Claims Act are typically three times the damages, but in this case, the fine was negotiated by the parties.
Chapman said Insight Public Services was one of three companies he had brought to SBA's attention in late 2002 for possible size misrepresentation. "I sort of came to the conclusion that they weren't going to do anything, to tell the truth," he said.
Such delays, as well as rules that favor large businesses in federal contracting, and incentives within the federal government to appear to be in compliance with small business contracting goals, make it uncommon for companies to be held accountable for size-related fraud and abuse in federal contracting, Chapman said.
"I'm glad to see the government take some action to stop firms from illegally receiving federal small business contracts; however, I think the fine is too small," Chapman said in a statement. "A $1 million fine is a drop in the bucket for a Fortune 1000 firm."
But SBA Administrator Hector Barreto said, "SBA takes very seriously the issue of false certifications of size status by firms seeking the benefits of government contracting, and fully supports vigorous and effective law enforcement in such matters."
The SBA inspector general's office released a report in February 2005 that found numerous problems with small business certifications and contracting.
"Although we remain convinced that the company did not have a liability to the federal government as a result of the small size representation of CGES in March 1996, we agreed to settle the matter to avoid the risk, expense and internal diversion of litigation," said Richard Fennessy, Insight's president and chief executive officer, in a statement.