State Department calls arms dealers’ disadvantaged status ‘coding error’

By Elizabeth Newell Jochum

April 4, 2008

The State Department believes the incorrect labeling of Miami-based Defense contractor AEY Inc. as a small disadvantaged business was a "coding error," a State spokesman said Thursday.

AEY, owned by 22-year-old Efraim Diveroli and under investigation for delivering faulty munitions to Afghan security forces, saw business boom after being designated a small disadvantaged business in mid-2006. Small Business Administration officials said, however, that AEY was never certified as such, Government Executive reported on Thursday.

Before the designation appeared in the General Services Administration's Federal Procurement Data System, AEY had done $8.14 million in business with the federal government. Since the small disadvantaged label was applied, AEY has earned more than $204 million in federal contracts.

The State Department awarded the first contract under which AEY was designated as small and disadvantaged on June 8, 2006. The $625,000 contract to "provide ballistic combat vests for Pakistan" was awarded through "full and open competition after exclusion of sources," meaning the contract was competed after being set aside for small businesses.

A State Department spokesman said the agency's Office of Acquisitions Management and Office of Small and Disadvantaged Business Utilization checked the Central Contractor Registry and the Small Business Administration's Dynamic Small Business Search -- both public databases -- and "found that AEY Inc. is not certified as an SDB nor are they designated as an SDB in the database profile."

"The department believes the designation in question is a coding error," the spokesman said. "Although the department awarded contracts to AEY Inc. no contract awards were based on the belief that they were a SDB."

A State Department acquisition official said information on a company's SDB status is automatically entered into the Federal Procurement Data System from the Central Contractor Registration Database and that a contracting officer would be unable to change a company's designation. He could only explain the disparity in AEY's status in the two databases as a coding error.

The official said AEY was erroneously labeled a small disadvantaged business on only two State contracts, but that a coding error would have to have occurred individually on each of those contracts. The set-asides used for those contracts were for all small businesses, not just disadvantaged ones. He said small disadvantaged businesses are not eligible for special bidding benefits and therefore AEY received no advantage from the inaccurate designation.

Small disadvantaged businesses can receive price evaluation adjustments or proposal evaluation credits on Defense contracts, however, and might have on the dozens that classified the company as SDB.

AEY owed the government about $300,000 in deallocations in the first half of 2006. The company raked in $2.6 million in government contracts between June 8 and the end of 2006.

The Defense Department did not respond to requests for comment.

By Elizabeth Newell Jochum

April 4, 2008