Part 4: SBA’s contracting practices under close scrutiny

(This is part 4 of Federal News Radio’s investigative series, “Discouraged and Disrespected at SBA.”)

Over the past year, the Small Business Administration’s contract practices have come under fire.

The House and Senate Small Business Committees questioned the agency about a contract to McKinsey and Company, SBA Administrator Karen Mills’ former employer.

The SBA inspector general found that the agency’s contract using Recovery Act funding for its customer relationship management tool fell short in meeting...


(This is part 4 of Federal News Radio’s investigative series, “Discouraged and Disrespected at SBA.”)

Over the past year, the Small Business Administration’s contract practices have come under fire.

The House and Senate Small Business Committees questioned the agency about a contract to McKinsey and Company, SBA Administrator Karen Mills’ former employer.

The SBA inspector general found that the agency’s contract using Recovery Act funding for its customer relationship management tool fell short in meeting federal procurement policies and standards.

And now, new allegations of acquisition improprieties are coming to light.

Former SBA chief operating officer Eileen Harrington hired a consulting company, KnowledgeBank, to allegedly gain access to her longtime colleague, Rosemarie Straight.

Harrington, who moved back to the Federal Trade Commission in November, and Straight worked together at the FTC for more than 20 years. Straight retired in 2007 as the agency’s executive director. Harrington, who now is FTC’s executive director, served in several senior management positions while Straight was at the agency, including as deputy director and associate director for marketing practices.

SBA’s contract to KnowledgeBank, a Native American-owned 8(a) firm, initially was worth $32,649 in August 2009. But SBA modified the contract three times over the next eight months and the award ended up being for more than $115,000. (SBA’s modifications to KnowledgeBank’s contract: Sept. 24, 2009, March 23, 2010, and April 15, 2010.)

The contracting documents specifically call out Straight as the consultant KnowledgeBank was presenting to SBA to do the work.

“Whether this contract was awarded properly or not, one would question whether there was proper judgment made and whether there was a violation of an appearance of a conflict,” said Bill Shook, a procurement attorney with Shook Doran Koehl. “The code of conduct for all government employees requires each employee to avoid even an appearance of conflict of interest.”

Shook said he’s seen this type of contracting arrangement too often during his 20-plus year career as a procurement attorney.

“Unfortunately, it is a common practice to have directed awards where someone wants a desirable person and they look for a contract vehicle to make an award,” he said. “It would appear this is a contract vehicle to make such an award.”

SBA’s Jonathan Swain, the assistant administrator for communications and public liaison, in e-mailed responses to questions said, “The agency is not aware of any wrongdoing with the specific contracts you mention. As for the contract with KnowledgeBank, the agency has found no indication of fraud in how the contract was awarded or performed. KnowledgeBank was hired to provide training services and performed timely and as promised.”

Harrington declined to comment on the contract with KnowledgeBank or Straight.

Attempts to contact Straight were unsuccessful.

And KnowledgeBank CEO and founder Tom Wimer said he hasn’t been made aware of anything involving his company that was improper. He said his company has done everything above board.

But Wimer refused to go into further details about the contract or his business relationship with Straight.

Experts question agency actions

The allegation of contracting abuse comes as four SBA employees claim retaliation for blowing the whistle on alleged human resources fraud and abuses.

Shook and other procurement experts who reviewed the contract paperwork say SBA’s actions leave a lot of questions.

One congressional staff member, who requested anonymity because they didn’t receive permission to speak on the record, said SBA’s actions raise two concerns.

The staff member said the relationship between Harrington and Straight raises ethical issues. The Hill source also said it was unclear what SBA got for the $100,000 it spent with KnowledgeBank, and specifically Straight.

According to the contract documents, SBA hired KnowledgeBank, and specifically Straight at $132 per hour, to provide “technical insight and advice on particular strategies that could potentially help the COO in developing the high performing organization. Second, the consultant will conduct fact finding (to include a review of organizational structure and functions and interview staff designated by the COO). The result of all the fact finding will be shared with the COO. The consultant will also provide observations on whether the current organizational structure meets the needs of SBA. Lastly, general recommendations will be made to meet any management training needs.”

In the final modification on April 15, 2010, SBA paid KnowledgeBank $80,852 for “technical expertise and executive coaching to achieve a sustainable program of administrative and management excellence.”

Shook and the Congressional source say the statement of work is generic and is not asking for anything that couldn’t be done by dozens of companies in the Washington area.

SBA received one other bid on the request for proposals that KnowledgeBank won, according to information on the website.

Shook said too often vendors submit a courtesy bid just to make it look like it’s above board.

“Unfortunately SBA, like many federal agencies, seeks to avoid competition while giving lip service to competition,” he said. “They use massive indefinite delivery, indefinite quantity contract vehicles to direct awards to certain individuals or certain entities. It’s a common practice throughout government. It’s not meeting the full spirit of the 1984 Competition in Contracting Act.”

Shook also said the fact that Harrington and SBA general counsel Sara Lipscomb signed off on a contract raises questions because it’s unusual for a senior agency official such as Harrington, or a general counsel, to get involved in such a small contract.

“There are procedures if some individual is so valuable and has unique requirements to bring them on without competition,” he said. “My wish when those unique situations present themselves is for federal agencies to be honest with the public and say, ‘This individual or entity is absolutely unique and we need them to accomplish our goal’ and that justification can stand on its own. It seems like SBA’s statement of work was broad enough that there are many talented individuals available.”

Congressional scrutiny

Beyond the contract with KnowledgeBank, SBA has come under Congressional scrutiny for other contracting actions over the past year.

Both the House and Senate small business committees questioned Mills about contracts with McKinsey and Company. Mills consulted for McKinsey before coming to SBA.

SBA awarded McKinsey a $580,000 contract to review its new loan management software. Rep. Nydia Velazquez (D-N.Y.) and Sen. Olympia Snowe (R-Maine) requested documents from SBA on the award process.

In a May 2010 letter to Mills, Snowe emphasized the importance to keep the procurement process independent, competitive and impartial. Snowe wrote that as ranking member of the Small Business Committee “it is her responsibility as ranking member to make certain safeguards remain in place to ensure contracts experience an unbiased review and maintain a full and open competition process.”

SBA spokesman Swain says in an e-mail the agency is “similarly unaware of any wrongful conduct in how that contract was awarded or performed. The contract was awarded after a full competitive process, and was performed properly and on time after it was awarded to McKinsey and Company.”

He said the background contract file was found to be missing prior to the administrator’s hearing before the House Small Business Committee last spring. Swain said it was promptly reconstructed and provided to the committee.

A spokesman for the former chairwoman and current ranking member of the Small Business Committee, Velazquez, would not comment on the McKinsey contracts.

IG findings

But SBA’s contracting challenges don’t stop there. The agency’s inspector general issued a report in June about SBA’s use of Recovery Act funds.

The IG found that SBA didn’t have an approved acquisition plan prior to award. Auditors also said SBA officials awarded a contract for Microsoft software that was “basically a pass-through.”

Finally, the IG found that the contract was awarded non-competitively, which violated the administration’s requirements that all contracts using Recovery Act funds are competed.

SBA’s Swain said the agency is fixing the problems the IG found.

“Administrator Mills has repeatedly expressed her commitment to rooting out fraud, waste, abuse and mismanagement in SBA programs and to pursue all opportunities for improving the way the agency does its business,” he said in an e-mail. “Reflective of that, the agency has taken proactive steps to improve its procurement and acquisition process. This includes re-aligning the procurement function under the chief financial officer’s direction, in order to take advantage of that office’s expertise in process review and management. Also reflective of the administrator’s commitment are ongoing efforts to strengthen acquisition planning, including specifically addressing the issues raised in the June Inspector General audit.”

Ethel Matthews, a senior advisor to the chief privacy officer in SBA’s chief information officer’s office, said the Recovery Act project remains problematic despite SBA spending millions of dollars.

Matthews is also one of the four employees who are claiming whistleblower retaliation. She said reprisals started when she alerted the IG about possible misuse of Recovery Act funding.

Shook said contracting problems at agencies, whether it is SBA or any other one, tend to come from carelessness rather than maliciousness.

“At the heart of every potential problem, you have someone who has violated the code of conduct regulations to avoid even the appearance of a conflict of interest,” he said. “This administration has had a lot of discussion of late to once again reinforce the need to be aware of and avoid any conflict of interest. A lot of it is common sense. And every time this kind of story is generated people lose faith in the ability of the government to function fairly and on a level playing field. It is a decades-old regulation and one of the first requirements of all government employees.”

Read more of Federal News Radio’s exclusive “Discouraged and Disrespected at SBA” series.

Part 1: Four employees claim retaliation from SBA managers

Part 2: SBA employees allege fake positions created

Part 3: SBA whistleblowers weigh resolution options

Part 4: SBA’s contracting practices under close scrutiny

Part 5: SBA responds to whistleblower series

Update: SBA assures senator it’s fixing management problems

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