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Atlantic Diving Supply has been a successful federal contractor, but one that has attracted controversy. Mainly over whether it is in fact a small business in winning positions on contract vehicles set aside for small businesses. For what the company itself has to say, Federal Drive with Tom Temin spoke with its general counsel, Adam Casagrande.

Interview transcript:

Tom Temin: Is it a small business with respect to SBA size standards for distributors such as yourself?

Adam Casagrande: Yes, with that final statement being the main component of it, that’s something that I think a lot of people misunderstand or maybe don’t think about. A business is not small or other than small as a whole, it’s based on the contract itself. So on any given contract, there is potentially a different version of what would be considered small or not, for instance, some contracts, and they’re called NAICS. codes, and NAICS, which is an acronym, I’m not going to pretend that everyone pronounces it differently. I believe it’s pronounced NAICS. But the NAICS code usually determines what industry that contract is for. And then based on that what’s considered small for that industry, I don’t want to pretend to know, I mean, there are hundreds of NAICS codes, depending on the industry, the SBA issues, those NAICS codes, I think it’s on a five year rolling basis, they update them. And so for a particular contract, if it has a NAICS code that says you have to have under $100,000 in revenues to be small, we wouldn’t be small under that contract and couldn’t bid as a small business under that. Whereas other contracts are based on employee count. And some of the NAICS codes are 200 employees, you’re considered small. Some of the NAICS codes go up to I think 1500, or even 1750 at this point. For us, though, and that’s why I targeted on your your last statement there. As a distributor, there’s something called the non manufacturer rule, the non manufacturer rule was codified in the Small Business Act, I believe it was amended in 1988, which says, if you are a non manufacturer, I’m paraphrasing, if you’re a non manufacturer, if you have 500 or fewer employees, you are considered a small business. And so for the contracts that we hold where we did as a small business, and we have contracts that are unrestricted and are not for small businesses, and we have those as well, but for those that we have bid on that are small business contracts, that is the governing number for us, that is what’s making us considered small, having under 500 employees. And there’s a definition in the Federal Acquisition Regulations and the foreign SBA has, there’s a lot of case law out there. And there’s many different ways to to count it. But ultimately, what is counted as the number of full time part time, or temporary employees on a rolling 12 month basis, any affiliates of the company, and when you add up those numbers of employees, and you do that average over the 12 month rolling basis, if you have 500 or fewer employees, you qualify the small business under the non manufacturer rule. And we have and we always have had under 500 employees

Tom Temin: We’re speaking with Adam Casagrande, he’s General Counsel at Atlantic Diving Supply. And you go by ADS actually not by the words.

Adam Casagrande: Yeah we trade as ADS, we started as a small diving company selling stuff to the local sales. And that’s the origin of the company over time, the company has grown out of selling diving supplies. And we’ve now expanded to the point that we go by ADS Inc. Yes.

Tom Temin: Now in 2017, the company did pay, and this has been reported widely as a $16 million settlement. What was that all about? And what does the company say about that settlement in which I think the government said that it did not disprove charges of fraud and bribery, but nevertheless, there was a settlement – and I guess that question may not have been resolved?

Adam Casagrande: Well, I would disagree that it wasn’t resolved. We did resolve it with the government and there was no finding of any of the allegations. What that settlement as a result of this, there was something called a qui tam suit or under the False Claims Act.

Tom Temin: A whistleblower.

Adam Casagrande: Yes, exactly. a whistleblower suit and whistleblower suit was filed by a Delaware shell corporation with the identities of the individuals unknown, it was purposely hidden who they were, and from what we understand, and frankly, we still don’t know, it was filed sometime back in the 2010 to 2012 time period. We were not even aware it was filed where we were under investigation for a long period of time. And ultimately, that complaint, they’re filed under seal, so you’re not aware of it at the time, ultimately, we received what’s the I guess, the equivalent of a subpoena from the government asking for records and that’s when we became aware of it. At the time that we were issued, what it’s called a CID, the subpoena, at that point with the number of documents that we were required to provide the review and everything else in between our legal fees were stretching the ability of, our ability to continue to operate as a business. I joined the company in 2016 and one of the first things I did when I joined the company was I immediately met with the Department of Justice to talk about what this suit was about, what was alleged against us, and how is it something that can be resolved. And frankly, I said to them, if we have people in this company that are doing something wrong, please tell me and I will hand them to you. We interacted with the Department of Justice on the civil side, that’s an important distinction to make. It was a civil claim, it was not a criminal claim at all. They were very cooperative with us. And we had very productive discussions. And we reached a point where we made the decision. And I understand that this sounds like a lot of money when I use the words a nuisance settlement. But when you get to the point when you’re paying millions of dollars a year to lawyers to respond to a subpoena when the Department of Justice offered us the ability to settle for $16 million over a five year period, that actually ended up being less than what we were paying our lawyers are here. And so for us, it was a fairly easy business decision to make while unpalatable, to settle the case. I’ve been practicing for 20 years, I’ve settled a number of cases for clients, I was a trial lawyer before coming to ADS. And you often have to do that in order to keep your business running. And we were getting to the point where we were not going to be able to continue running as a business if we were going to be paying those fees. I mean, the allegations in the suit were far ranging, I think we were accused of every single type of government procurement, fraud or other type of crime that exists in my discussions with the Department of Justice. They were not even pursuing almost every single one of them in their investigation, they thought that they’re spurious. And I’ll go out on a limb to say that I got a couple of eye rolls from them when I would discuss certain of the claims. And they said, yeah, we’re not even looking at that. And it really came down to the allegations of whether we were a small business or not. And when we resolved it, I asked them, do you have evidence that we’re not a small business or that we weren’t a small business in the past? And I was told, we don’t have that evidence yet. But we’re going to keep looking. And that’s when we reached a decision after years of paying those legal fees to settle the case. And so we settled that case, as you mentioned, but I just do want to point out that in the meantime, not only were we continuing to receive awards daily, we were continuing to receive contracts from various contracting officers throughout the government. I named all the agencies before that were giving it to us. And it’s important to note that those allegations at this time that we settled, were out there, they were in the public domain, and they were known by the US government. It is a contracting officers duty to determine whether a contractor us in this case is presently responsible before awarding any contract or any task order to that contractor. And they have to do that knowing if there are allegations out there about this. And I will tell you that we received during this time period thousands of contracts and task orders from contracting officers throughout the federal government, both DoD and otherwise, including all of those agencies I mentioned, with full knowledge of the allegations against us. I’d also like to mention, and, I apologize if I’m getting ahead of myself, we were up for an award of one of our larger contracts from DLA. We call it the TLSFDS, Fire and Emergency Services contract. And DLA to their credit in the abundance of caution, awarded it to us along with as I said before several competitors, but at the same time filed a protest itself to determine whether our size status was appropriate in order to be awarded that contract. And that protest was filed with SBA. And the SBA conducted an almost year long audit and investigation of our company that ended in 2019, where the SBA found unequivocally that we were and always have been a small business under that 500 employees standard that I mentioned to you earlier.

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Tom Temin: I also asked whether affiliate companies or companies also owned by the majority stockholder in ADS somehow affected size

Adam Casagrande: There are a few companies that he owns that have a small number of people that we are affiliated with under the SBA affiliation rules. We disclose that to the SBA every time and everything that we told the SBA was correct, and they found no other business interests otherwise, and that’s the case.

Tom Temin: Adam Casagrande is general counsel at Atlantic Diving Supply, or ADS. There’s much more to the interview. We’ll post it in its entirety at federalnewsnetwork.com/federaldrive.

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