Little Guys Said Tossed Aside as Contractors Absorb Cuts

Computer Frontiers Inc.’s owner thought she’d gotten a break when Stanley Inc. agreed to team up with the small technology company in the U.S. government market.

Instead, Barbara Keating says she feels betrayed. Canada’s CGI Group Inc. (GIB/A), after buying Stanley, touted the relationship to win orders in the past three years under a State Department visa-processing contract valued at as much as $2.8 billion. Then it mostly cut the small business out of the deal, sending some work overseas, according to a federal lawsuit.

“We were a big part of winning the contract,” Keating said in a phone interview. “We definitely thought we’d all grow together because of this relationship. But that obviously didn’t happen.”

Large companies are increasingly reducing subcontractors’ roles to help cope with $1.2 trillion in automatic federal spending cuts that began in March, according to attorneys and contracting specialists. Those grievances have reached U.S. officials, who want to know when vendors won’t be working with small businesses that helped them get the work.

“We went to many different parts of the country and met with companies, and in almost every city there was someone that said this was an issue,” said Ken Dodds, director of policy, planning and liaison for the U.S. Small Business Administration.

Photographer: Ryan Remiorz/AP Photo

Serge Godin, chief executive of CGI Inc. Close

Serge Godin, chief executive of CGI Inc.

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Photographer: Ryan Remiorz/AP Photo

Serge Godin, chief executive of CGI Inc.

The Small Business Jobs Act of 2010 demanded that the government start requiring contractors that operate under a subcontracting plan to notify agencies when they’re not using small businesses that were part of their bids, Dodds said. A regulation to implement that part of the law hasn’t been approved.

More Complaints

CGI has “fully satisfied its contractual obligations” to Computer Frontiers, said Linda Odorisio, a spokeswoman for the Montreal-based company. The small business’s subcontract with CGI expired in February 2012, Odorisio said. CGI is one of the main vendors on the U.S. government’s flawed health exchange.

Attorneys and contracting specialists say they’re seeing more small businesses complain about bigger companies.

“They may give work to a more preferred subcontractor or a more qualified subcontractor -- or just someone the contractor likes,” said Mark Amtower, who runs a government contracts consulting company in Clarksville, Maryland. “Some larger companies are better than others but all are guilty to some degree.”

With many U.S. agencies’ budgets contracting, “the incidence of this is getting much higher,” Amtower said in a phone interview.

Budget Cuts

When federal agencies began cutting, some prime, or direct, contractors started moving more work in-house instead of sending it to subcontractors, said Hope Lane, a partner at Aronson LLC in Rockville, Maryland, who leads the company’s government contracts consulting practice.

“All of a sudden primes have people available that they don’t want to keep on the bench,” Lane said in a phone interview.

Large vendors have an incentive to advertise relationships with small companies when competing for work. U.S. agencies frequently seek contractors that pledge to work with small businesses, especially those owned by disabled veterans, minorities or women.

Many subcontractors don’t want to take their disputes to court, said Larry Allen, president of Allen Federal Business Partners, a McLean, Virginia-based consulting company.

“You sue with caution as a small business subcontractor,” Allen said in a phone interview. “Just as large business prime vendors can develop a reputation for not being fair, so, too, can small business subcontractors get a reputation for being a pain in the ankle.”

Mentor Programs

Some companies have taken the risk.

Ginmar Corporate Promotions Inc., a small business owned by a black woman, in 2008 filed a federal lawsuit against Cardinal Health Inc. (CAH) Ginmar, based in Chicago, claimed it had joined the medical supply company’s mentor-protégé program, which helped Cardinal win federal contracts, and was then shut out of some sales.

The case against Dublin, Ohio-based Cardinal was dismissed.

Deb Mitchell, a spokeswoman for Cardinal Health, declined in an e-mail to comment on the outcome of the lawsuit.

“We’re proud of our continuing commitment to developing long-term, mutually beneficial relationships with diverse suppliers,” Mitchell said.

For small businesses, the lawsuits can be “tough fights” because large companies have much deeper pockets, said Tom Craig, a partner with Fluet Huber + Hoang Pllc, which is based Woodbridge, Virginia. The law firm represent Computer Frontiers.

“The resource mismatch is really phenomenal,” Craig said. “Larger vendors have a lot more room to fight, and frankly, I think they sometimes bet on that.”

Last Resort

The lawsuit filed by Frederick, Maryland-based Computer Frontiers was a last resort, said Lee Dougherty, another partner at Fluet Huber.

The small business sued after receiving less than 1 percent of the estimated $150 million that CGI has received through the contract, Dougherty said. CGI didn’t abide by an agreement to share 9 percent of the orders tied to the visa-processing contract, according to the lawsuit filed last month in Alexandria, Virginia.

“This contract was won using our client’s experience, our client’s size and our client’s past performance on this type of work,” Dougherty, chairman of the government contracts practice group, said in a phone interview. “For a Canadian company to use all of that to win a U.S. contract, and then not utilize the company that won them the work, is essentially a bait and switch on the government.”

CGI Acquisition

Computer Frontiers had at least one staff person working on the bid at Stanley’s offices most days in the year before the contract was awarded, Keating, the small business owner, said in a phone interview. It wrote parts of the proposal, suggested technology solutions and helped develop strategy, she said.

CGI bought Stanley in August 2010, six months after the State Department’s visa contract was awarded, for about $1.05 billion.

CGI assumed Stanley’s role as mentor to Keating’s Computer Frontiers through a State Department program, according to the suit.

Federal agencies use mentor-protégé programs to help boost small businesses. The State Department program encourages large contractors to help the companies through training and business-planning tips, among other help.

Computer Frontiers never received any such guidance from CGI, Keating said.

“There were no meetings,” she said. “Nothing occurred except we filed annual reports to the State Department.”

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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