Growth is usually the name of the game in business. However, trying to mask that growth so that your company can qualify for special government contracts is a tactic some take, despite the possible consequences. Fines, disbarment, or even jail time can come from not being forthcoming about your firm’s current state or origin, especially as there has been an uptick in enforcement actions from the federal government. For more on this, as well as other trends to keep an eye on this summer, Federal News Network’s Eric White talked with Larry Allen from Allen Federal Business Partners on the Federal Drive with Tom Temin.
Interview Transcript:
Larry Allen Eric, great to be here. Thanks very much.
Eric White Great. So, yeah, what is the I guess the, the uptick in, we’ve been seeing them come across the news waves from, you know, whether it’s a DOJ press release or a GSI enforcement matter where they are starting to crack down on companies that aren’t as small as they say they are or aren’t actually a veteran owned business. What are you hearing in your circles?
Larry Allen Eric, I think the most recent GSA IG semiannual report highlights a problem in small business certification that while it’s not a new problem, it certainly bears repeating because this is a focus area, clearly, of the contract enforcement community. And that is, if you’re a small business, that’s great. But if you’re not a small business, even if you had been one two days ago, you need to own that fact as well. Simply put, you’re living on borrowed time as a company that calls itself small but no longer qualifies as such. And one day that time’s going to run out on you. And the consequences are serious, as we saw in the IG report and you alluded to it in the beginning, one person is going to jail actually for a number of months and will almost certainly be suspended or debarred from doing government business for a period of time. Each of the companies that were involved in the IG report had to pay sizable fines. And you know, Eric, as I’ve said before, those fines don’t just come out of the blue. It’s not like, you know, they come in and say, hey, please pay us $1 million. And the company writes them a check the next day. I mean, you’ve lost productivity, you’ve got legal bills that you’re paying before you ever get to that point. So, while I understand the value of having a small business moniker and doing business with the government, I also understand the danger of calling yourself something that you’re actually not.
Eric White Yeah. So obviously, the attraction to keep doing this is because then you qualify for those set aside contracts. Is it also difficult for a lot of firms to make the transition from relying on those set aside contracts to becoming a large business, where you have to rely on your own merits, rather than having this special, I guess, entity carved out for you.
Larry Allen I think it can be Eric, and it certainly can be scary. And I think some of it depends on how much set aside business that particular small business was doing relative to other business. Look let’s use the 8(a) program as just one example. You graduate from the 8(a) program typically in seven years. If you’re in year four, it’s time to start thinking about what it is you might be doing when you lose that status for a couple of reasons. One is the SBA could graduate you early if you’re really successful, but the other is that, look, in three years, you’re going to have to, figure out how to stand on your own two feet as someone who no longer qualifies as an 8(a). And again, that’s just one example. If you’re even just a regular old small business that’s transitioning, and you can see what the five-year timeline is going to bring to you in terms of extra business, it’s time to start thinking about competing on open market business, lessening your reliance on set asides. I understand the lucrative nature of having small businesses set aside business, but you have to think about tomorrow and not just what’s coming in the next day or two.
Eric White Larry Allen with Allen Federal Business Partners is with us, something that is not coming in the next day or two. But in a few years from now, the federal government is going to be trying to regulate exactly where semiconductors come from. Now, semiconductors kind of a term that is thrown around a lot. They are in just about everything. How difficult could this be on government contractors that are relying on semiconductors from sources in China that the government doesn’t want to do business with anymore?
Larry Allen Eric, this, potential role could really be very significant for contractors. And that’s why I’m writing about it this week and urging everyone to pay attention to what we’re talking about specifically in. Is the issuance of an advance notice of Proposed Rulemaking by the Far Council. The advance notice itself should be a heads up that this is going to be a potentially sticky situation. You don’t have to issue an advance notice, but you know, when you do, then it’s typically an indication that you’ve got an issue that’s going to be thorny and could have a lot of tentacles to it. And the semiconductor and PR is no exception right there. And the advance notice the FA Council saying that it may require in a final rule that providers of semiconductors understand the supply chain provenance of each component that goes into the semiconductor that’s provided to a government agency in fulfillment of the contract. That’s a potentially substantial tracking burden, particularly if you’re a small business. You know, think about your entire supply chain and being able to determine the provenance of each component along the way. Clearly, this is a national security and cybersecurity issue, and it’s something that the government is definitely taking seriously. And since it is so too should government contractors. But you have to be, aware of what’s going to happen in your business and what you could be responsible for and if you’ve got some concerns with it. This ANPR is now the first time to step up and make sure that your views are heard.
Eric White Yeah. As semiconductors kind of came. There was a wave of talk about them just because of the geopolitical implications. I mean, is this going to be kind of the M.O. whenever a new piece of technology gets into the political hemisphere, are contractors going to have to keep dealing with this every time they want to utilize that technology?
Larry Allen Well, that’s a really good point, Eric. And I think, you know, one of the things that I’m saying is that the semiconductor issue may actually go wider and deeper than the telecommunications prohibitions that are already in place. Those are popularly known as section eight, 89 A and B, restrictions on telecommunications and certain types of IT. So, we saw it here. We’re seeing it again with semiconductors. We could definitely see it again in some other part of the technical supply chain or as some sort of new technology. And you’re right about the geopolitical implications. You know, the government bottom line is being serious, saying we’re not going to allow products that have a tie to the People’s Republic of China or their government to be part of a US supply, solution. And the government, that’s just not going to happen. So, you know, you need to figure out what the alternatives are. And if you look at semiconductors, the government has made, you know, a multibillion dollar bet on diversifying the U.S. domestic semiconductor industry. And so, this is being done kind of hand in glove. We will not allow you to supply these types of semiconductors, but we are going to give you an alternative. And we’re going to be providing seed money to develop that alternative in domestic manufacturing locations.
Eric White I had you look into the crystal ball for that last question, but I’m going to have you do it again for a little bit of, not as far down the road. What do things look like this summer as we now have the congressional schedule for, the days that it will be in session? And what does that mean for the folks who do business with the government?
Larry Allen Well, Eric, I think one way to look at it for folks who do business with the government is if you want to talk to your member of Congress, you better go to the beach, because, they’re going to be out more of this summer than not. As I’m writing. It’s the, endless congressional summer. Cue the Beach Boys, cue the surf for music. Congress is only really going to be in session for, you know, I think 20 some odd days, very much in the low 20s between now and the, and Labor Day. And most of those days, I think 12 of them are going to be during this month of June. So if it doesn’t happen in June, it’s not probably going to be happening until September at the earliest. And even then, you know, Congress is only going to be in for maybe three weeks in September, maybe more like two and a half. Given all of the holidays and other things that they, that they have on their calendar. So that’s not a lot of time to finalize things like the defense authorization bill or the FY 25 appropriations measures. We know that both of we know that FY 25 is going to start under a continuing. Resolution, but wouldn’t you like to have as much business done now so that the continuing resolution can be undone in December and you can get appropriations for the full year, rather than waiting till spring like we did in the current fiscal year. You know, that just makes for a better UN government. But, all in all, if you’re, a government contractor, the best place to find your local politician is not going to be in Congress this, summer. It’s going to be, one of the two party conventions or on a fact finding mission somewhere outside the Beltway.
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