August 4, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
By
August 3, 2020 at 8:00 a.m. EDT
A military equipment supplier that has been accused of fraudulently misrepresenting its size in order to benefit from privileges associated with being a small business has received a Paycheck Protection Program small business loan worth at least $2 million, public records show.
Atlantic Diving Supply, a Virginia Beach, Va.-based reseller of specialized military gear, is the latest organization whose receipt of taxpayer-backed loans through the Paycheck Protection Program has raised questions about a program launched in early April to help sustain employment at small companies through the economic crisis.
In late April, the Treasury Department retroactively clarified its rules after well-known restaurant chains, car dealerships and hotel companies reported receiving PPP loans. Several of them returned the loan funds following public uproar; others kept the money. The SBA has said it will audit all PPP loans above $2 million to determine whether the recipients were eligible.
Representatives from the Small Business Administration and Atlantic Diving Supply did not comment on the company's receipt of SBA loans.
The company's legal issues are detailed extensively in a report released Monday by the nonprofit Project on Government Oversight, known as POGO. A review of business data by POGO and the nonprofit Anti-Corruption Data Collective concluded that ADS was one of at least 27 PPP recipients estimated annual sales of more than $1 billion in 2019. Another 2,068 loan recipients cleared $100 million in sales last year, according to the analysis.
Nick Schwellenbach, a senior investigator at POGO, questioned whether it's appropriate for ADS to receive small business coronavirus loans. Schwellenbach's investigation also found that two other firms allegedly tied to ADS ― including one that was named in a settlement with the Department of Justice ― separately received smaller PPP loans.
“It's important that taxpayer funding reserved for genuine small businesses isn't siphoned off by companies that are not eligible,” Schwellenbach said. “As a top government contractor with revenues well over a billion dollars a year, it strains credibility that Atlantic Diving Supply is a real small business, especially given several recent settlements and law enforcement outcomes related to their alleged small business contracting fraud."
Although it received a favorable ruling from the SBA as recently as November 2019, ADS's small business credentials have long been called into question.
ADS started as a small, family-owned shop focused on the military diving community in Virginia Beach, which includes the Navy SEALs. It was transformed under the leadership of long-time chief executive Luke Hillier, winning its first major government contract in 2000. It grew quickly to meet an insatiable demand for military gear of all sorts in the years following 9/11.
That fast growth became permanent business as the U.S. military presence in Iraq, Afghanistan and elsewhere dragged on for nearly two decades.
At one point, ADS filed papers to go public, something that is usually the purview of large corporations. In 2015 it purchased Theodore Wille International, a military food and equipment supplier with offices in seven countries.
Its business has remained healthy despite recent troop reductions. ADS received more than $3 billion in unclassified government contract dollars in 2019, procurement records show. That's more than some well-known, objectively large government contractors, including Bechtel, KBR and CACI. ADS has already cleared $1 billion in federal contract receipts in 2020 despite the economic crisis.
As it has grown ADS's continued status as a small business status has been critical to its participation in the Defense Department's Tailored Logistics Support, or TLS program, a lucrative military supply line that is largely restricted to SBA-approved small and disadvantaged businesses.
In recent years, ADS's official headcount has teetered close to the SBA's 500-employee limit for small-company designation, and the company has fought off repeated challenges to its size status. If ADS were declared “no longer small,” it would not only be ineligible for SBA coronavirus assistance, but would also be forbidden from competing on small business set-aside contracts that drive its business.
In 2017, ADS settled federal allegations that it used a network of allegedly-affiliated companies to rig bids and fraudulently misrepresent its size. The Justice Department called the $16 million settlement “one of the largest recoveries involving alleged fraud in connection with small business contracting eligibility.”
Hillier, who has moved on from the CEO role but remained the company's chairman as of July 20, according to a company filing, separately paid $20 million to settle federal allegations that he “violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive.” The settlements resulted from a Qui Tam lawsuit brought by whistleblowers.
Two of the alleged affiliate businesses — Karda Systems and SEK Solutions — were named in a related case in which Ron Villanueva, a former state lawmaker from Virginia Beach, pleaded guilty to federal charges that he conspired to defraud the United States. Villanueva admitted that he and a friend pretended both companies were run by people who qualified for particular grants and drafted a misleading letter to the SBA that mischaracterized the degree to which one firm relied on other suppliers.
ADS briefly lost its small business designation as a result of those allegations when a Defense Department contracting officer, concerned by ADS's settlement, requested a formal SBA review of the company's size status and its degree of affiliation with other companies named in the whistleblower lawsuit, according to documents obtained by The Washington Post. That SBA review determined that ADS was “other than small,” which temporarily blocked the company from bidding on set-aside contracts. But ADS successfully appealed that ruling, which was reversed because it relied on old financial records.
Today the company continues to receive federal contracts designated for small firms. Because the settlements arrived at by ADS and Hillier did not include a determination of liability, the company has been allowed to keep benefiting from the SBA's various small business programs. Its most recent size determination, which found it to be a small business, was finalized in November 2019.
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By: Sebastian Sprenger COLOGNE, Germany — Lockheed Martin's Sikorsky and Boeing have submitted their proposals for the German military's envisioned heavy transport helicopter program, the companies announced. Sikorsky is offering a version of the CH-53K designed for the U.S. Marine Corps, while Boeing is pitching the H-47 Chinook. The offers, due on Jan. 13, come in response to a request for proposals published by the Bundeswehr last summer. Government officials will spend the greater part of 2020 analyzing the submissions, with a second and final request for offers pegged for the end the year. The multibillion-dollar STH program, short for Schwerer Transporthubschrauber, is meant to replace the German fleet of decades-old CH-53G copters. Deliveries from the winning bidder are slated to begin in 2024 and last through the early 2030s — that is if the program receives budgetary support from the government and lawmakers when the time comes for a contract next year. Both companies have assembled a group of German suppliers that would oversee areas such as maintenance, simulators and documentation in an effort to maximize domestic industry participation. The Bundeswehr initially wanted a no-frills, off-the-shelf cargo helicopter that would be easy on the defense budget. Notably, the Germans also want to use the STH choppers for combat search-and-rescue operations, with plans to raise that mission profile throughout the Air Force's ranks. But last year's solicitation came with an unexpected level of complexity, Frank Crisafulli, Sikorsky's director of international business development for heavy helicopters, told reporters during a company presentation in Bonn, Germany, on Monday. “Folks were caught by surprise,” he said. The added complications are due, for example, to the Bundeswehr's goal of having the helicopters certified in accordance with European civilian aviation regulations. In addition, German officials want a weather radar better than the one offered in the Marine Corps version of the CH-53K, plus a multilayered radio communications setup," Crisafulli said. As envisioned, the STH program would plunge the German military into a model of contractor-driven support popularized by the U.S. Defense Department under the moniker of performance-based logistics, or PBL. The idea is that the government can save money by dictating to contractors what level of readiness it wants for its hardware, and then letting vendors figure out how to meet those objectives within a given budget. Pentagon auditors previously affirmed the basic premise of performance-based logistics, with one key caveat: The government must have enough insight and clout in the programs to be able to set sensible performance benchmarks at rates favorable to taxpayers. According to Mike Schmidt, CEO of Rheinmetall Aviation Services, one of Sikorsky's key local partners, the concept is relatively new for Germany. At an STH industry day in 2018, “nobody knew what PBL was,” he said. At stake for the contractors is a 40-year relationship with Germany over the life cycle of the program. Boeing has portrayed its Chinook offering as a low-risk and low-cost option because more than 950 of the aircraft are already used by 20 countries. Sikorsky has played up the aerial-refueling capabilities of the CH-53K, especially in conjunction with the Lockheed Martin-made KC-130J tanker, to increase range. https://www.defensenews.com/global/europe/2020/01/14/lockheed-boeing-enter-germanys-heavy-transport-helicopter-race/