May 9, 2024 | International, Security
August 4, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
Defense contractor with billions in sales got millions in pandemic loans intended for small businesses
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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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September 1, 2024 | International, Land
AV Secures $990M Contract to Supply U.S. Army with Switchblade Loitering Munitions
Switchblade represents the next generation of extended-range loitering munition systems, providing operators in the field with a multi-mission loitering munition system capable of multi-domain operations
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June 12, 2020 | International, Naval
If the US Navy isn’t careful, its new unmanned tanker drone could face a 3-year delay
By: David B. Larter   WASHINGTON — The US Navy could face a three-year delay in testing of the MQ-25 Stingray carrier-based tanking drone if it doesn't get its designated test ships through the required modernizations on time, a possibility the Navy said was remote. Two carriers — Carl Vinson and George H.W. Bush — have limited windows to complete the installation of unmanned aircraft control stations, and if operational commitments intervene it could create significant issues for the program, according to Navy officials and a government watchdog report. “Program officials stated that, among other things, the Navy's potential inability to maintain its schedule commitments could require modifications to the contract that would impact the fixed-price terms,” the Government Accountability Office reported. “Specifically, the Navy faces limited flexibility to install MQ-25 control centers on aircraft carriers. “If the Navy misses any of its planned installation windows, the program would have to extend MQ-25 development testing by up to 3 years. According to officials, such a delay could necessitate a delay to initial capability and result in a cost increase.” Navy officials say a three-year delay is “extremely unlikely,” however the Navy has struggled in recent years to balance its modernization schedules with operational commitments, a problem that its “Optimized Fleet Response Plan” deployment rotation scheme was supposed to address. Ultimately, a delay would further push back the Navy's ability to extend its carrier air wing's range through unmanned tanking, critical to keeping the service's powerful strike arm relevant against long-range guided munitions. The Navy believes it can avoid a schedule delay and is working toward keeping the program on track, said Jamie Cosgrove, a spokesperson for Naval Air Systems Command. “The Navy is still planning to achieve [initial operating capability] in 2024,” Cosgrove said. “A three-year extension of development testing and a delay to IOC is extremely unlikely and represents improbable scenarios where both aircraft carriers currently designated to support MQ-25 testing are unavailable due to operational requirements, or the program misses the planned periods to install the MQ-25 test equipment on those two carriers. “Should either of these unlikely scenarios occur, the program will reevaluate the schedule and determine how to best mitigate schedule impacts to deliver the mission-critical MQ-25 to the Fleet ASAP.” Unmanned control The specific alternations needed to operate the MQ-25 Stingray include special control and network equipment, Cosgrove said. The program of record is the Unmanned Carrier Aviation Mission Control System and installing it will include setting up a control room known as the Unmanned Aviation Warfare Center on the ship. The equipment in the UAWC will include control stations, network interfaces and routing equipment, commanding and control equipment and network infrastructure, Consgrove said. The Navy awarded Boeing an $805 million contract to build the first four MQ-25 aircraft, with options for three additional aircraft. In April, the Navy announced it had exercised the option to the tune of $84.7 million, bringing the total number of Stingrays under contract to 7. Ultimately the Navy plans to buy 69 additional aircraft as part of the its full production run, according to the GAO report. The Navy's former air boss Vice Adm. Mike Shoemaker told USNI Proceedings in a 2017 interview that the MQ-25 would extend the carrier air wing's range by up to 400 miles. Juggling maintenance The Navy has struggled to maintain its carrier schedules in recent years as the problems have arisen with carriers during their availabilities. For example, last year, the carrier Abraham Lincoln was extended on its deployment because its relief, the carrier Harry S Truman, was stuck in maintenance to repair unforeseen issues. That can throw a monkey wrench into the Navy's overstretched deployment rotation scheme, meaning that other carriers have their deployments extended while still others have their maintenance availabilities truncated to play catch up. But that can lead to even more problems down the road with differed maintenance and worn-out equipment that ultimately adds up to a significant readiness hole that is tough to dig out from. All of this is exacerbated by crushing demands from Combatant Commanders for Navy forces overseas, which ultimately is driving the vicious cycle. That means the Navy will have to manage the risk of impacting the Vinson and Bush's upcoming maintenance availabilities to not set back the MQ-25 development cycle. https://www.defensenews.com/naval/2020/06/10/if-the-us-navy-isnt-careful-its-new-unmanned-tanker-drone-could-face-a-3-year-delay/