Feds Crack Down On Minority Contracting Schemes, D.C.’s Worst-Kept Secret

For decades, a portion of all federal contracts has been “set aside” for minority- and women-owned businesses, which can be awarded millions of dollars with little or no competition.

The 8(a) program, operated by the Small Business Administration, is meant to help “socially and economically disadvantaged businesses.” But in practice, the program has led to open corruption and the waste of hundreds of billions of dollars, with “disadvantaged” firms often simply “partnering” with a non-minority firm that owns 49% of the company, but does much of the work.

Take ATI Government Solutions, a firm that claimed Native American ownership to get 8(a) status. Its website focuses on its “Tribal Advantage: Procurement Advantages for Government and Industry by Partnering with ATI,” even though all the executives listed on its leadership page appear to be white.

Last month, O’Keefe Media Group published an undercover video in which Anish Abraham, senior director at ATI Government Solutions, acknowledged that his company was a “pass-through” that got a $100 million contract, kept $65 million, and paid another firm $45 million to do the work.

Melayne Cromwell, a black woman who is director of contracts at ATI, was also captured saying her firm only does 20% of the work. “A lot of our subcontractors bid on contracts that were perfect in their industry, but because they weren’t Native American, they wouldn’t win it, so we bid on it for them, and they became our subcontractor,” she said.

Now, top officials say set-aside contracting, a mainstay of the Washington swamp, could be changing for good.

Sen. Joni Ernst (R-IA), the chair of the Senate Committee on Small Business, wrote to SBA’s inspector general October 30, saying “over the years an egregious pattern has emerged where a special subset of 8(a) participants, the ‘Super 8(a)’s,’ may be taking undue advantage of their ability to obtain sole-source awards in unlimited amounts.”

“I request the SBA OIG immediately investigate ATI, its Super 8(a) parent entity Susanville Indian Rancheria, and its network of 8(a) subsidiaries,” she wrote in a letter obtained by The Daily Wire.

On Saturday, SBA Administrator Kelly Loeffler said that “As part of our ongoing investigation into ATI Government Solutions, SBA has uncovered and now suspended a network of SEVEN additional companies connected to its CEO Firmadge Crutchfield.”

“Their names have been provided to law enforcement. Thank you to every federal agency that has joined us in the effort to crack down on fraud in the 8(a) Program for ‘socially and economically disadvantaged’ small businesses.”

Ernst said that the Biden administration “tripled the 8(a) contracting goals from 5 percent to 15 percent,” but when she requested reports that are required to be filed with the SBA by certain minority-contracting firms to monitor for fraud, she found that “Biden’s SBA failed to track and retain them.”

“It is obvious that the Biden Administration’s indifference toward meaningful oversight in the 8(a) program allowed swindlers and fraudsters to treat federal contracting programs like personal piggy banks… Small business contracting programs were never intended to function as welfare systems for favored classes or give no-bid contracts to do-nothing companies,” she wrote.

“Penalties against rulebreakers have not been swiftly and resolutely imposed. Deterrence has completely failed… This stops now,” she continued.

She requested “All documents and communications related to any disciplinary or corrective actions SBA has taken on 8(a) firms over the last 5 years, including suspensions, disbarments, and removals from the 8(a) Program initiated by the SBA,” and asked:

• When would a contractor be suspected of violating the limitations on subcontracting?

• What is the specific process that occurs when a prime contractor is suspected of having violated the limitations on subcontracting, up to and including resolution?

• Have any contractors been found to have violated the limitations on subcontracting over the last 5 years?

Ernst also wrote to the SBA’s Inspector General, who has found abuse of minority contracting programs for decades.

She said there is little reason to believe anyone is actually tracking whether the minority-owned company actually does at least half of the work, as required, rather than having their “partner” or subcontractors do it.

“While this requirement is designed to restrict small businesses from acting as pass-through companies for ineligible firms, in practice, weak enforcement of this rule leaves the door open for abuse,” she wrote. “In the coming days and months, I expect to see significant 8(a)-related accountability actions and investigations initiated.”

In June, Walter Barnes III, the founder of contractor Vistant (previously known as PM Consulting Group, or PMCG), pleaded guilty to paying bribes in exchange for $544 million in USAID contracts. The court documents established that Barnes’ firm got contracts through being a black-owned firm; then, when it earned so many millions of dollars that it “graduated” from the 8(a) program, it would enter into 49%-51% “partnerships” with other firms that still had disadvantaged status. A USAID contracting official was able to ensure that contracts went to the people who paid him bribes because his minority status gave him the power to “sole-source” awards, instead of being obligated to give it to the lowest-price firm.

This year, the Justice Department stated that Vistant, as a corporation, was guilty, but granted it a deferred prosecution agreement. Despite more than a half-billion dollars going to a firm that was involved in massive fraud, the company is still eligible for contracts, and the government has continued to send it work through partnerships with “disadvantaged” firms.

The Daily Wire reported in June that the government allowed Vistant to tap into potential contracts amounting to as much as $800 million through a partnership with CollaborateUp, a “small business” operating out of a house.