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Blackwater May Have Broken Federal Laws to Obtain Lucrative Contracts

Blackwater misrepresented the size of its firm so it could receive more than $100 million in small business contracts from the federal government, according to a report released Monday.

The Inspector General of the Small Business Administration (SBA) said the mercenary outfit obtained a total of 39 contracts intended for small businesses with annual revenues of $6.5 million between 2005 and 2007. But the report said Blackwater’s revenue surpassed $200 million for those years.

Blackwater “obtained a total of 33 contracts during Fiscal Years 2005 through 2007, totaling $2,188,620, which may have involved misrepresentations to obtain the contract.”

The report also found that “it is possible that misrepresentations took place” on the remaining six contracts, totaling $107,311,356.”

Of the 39 contracts reviewed, 38 were awarded by the Defense Department and the Department of Veterans Affairs awarded one. The Inspector General’s report says the small business contracts “could have involved potential misrepresentations by Blackwater.

The Inspector General referred the matter to investigators at the Departments of Defense and Veterans Affairs.

Moreover, the Department of Defense wrongfully awarded Blackwater aviation contracts worth $107 million. That contract was earmarked for companies with annual revenues of less than $25 million or less than 1,500 employees, the report said.

The Small Business Administration was singled out and criticized for not thoroughly investigating Blackwater’s finances prior to awarding contracts to the company.

The report was prepared at the request of Congressman Henry Waxman, the chairman of the House Oversight and Government Reform Committee, who sent a letter in March to Steven Preseton, the administrator of the Small Business Administration.

“As part of the Oversight Committee’s investigation into the business practices of Blackwater Worldwide, the Committee has obtained evidence indicating that Blackwater may have applied for and received federal contracts by improperly claiming that it was eligible for small business preferences,” Waxman’s March 10 letter said. “It appears Blackwater sought these small business contracts by improperly designating its security guards as “independent contractors” rather than “employees.”

A Blackwater spokeswoman said the company has not reviewed the report and declined to comment. Federal investigators are still probing a shooting last September in Iraq involving Blackwater guards that claimed the lives of 17 Iraqi civilians.

The Inspector General’s 27-page report released Monday said Blackwater appeared to have improperly classified its guards stationed in Iraq and Afghanistan as independent contracts as opposed to full-fledged employees in order to obtain government contracts.

According to a memo issued by Waxman to Oversight Committee members Monday, “The key issue… was whether personnel hired by Blackwater to provide security services for the Department of State (DOS) and other agencies were Blackwater employees . . . or independent contractors.”

“In claiming it was a small business, Blackwater argued that 1,000 security personnel it provided under the State Department’s $1.2 billion Worldwide Personal Protective Service (WPPS) contract were independent contractors,” Waxman’s memo says. “The [Small Business Administration Inspector General] reports that Blackwater claimed that it “had little or no knowledge of the activities of the security personnel performing the contract and exercised little or no supervision over these personnel once they were deployed.”

The report “concludes that these assertions were incorrect,” Waxman’s memo says.

The Inspector General’s report says “Our review of the WPPS Statement of Work indicates that it contained a number of provisions that appeared to be inconsistent with SBA’s conclusion that Blackwater did not have knowledge about the actions of the personnel once they were deployed.”

The alleged misrepresentations by Blackwater may constitute a crime if the statements about the size and scope of its business were made in order to win federal contracts.

“The Small Business Act states that misrepresenting a business as a “small business concern” in order to win a federal contract is a criminal offense punishable by a $500, 000 fine and up to ten years in prison,” Waxman said in his letter to committee members. “The Act also states that a company found to have made false statements is “subject to suspension and debarment . . . on the basis that such misrepresentation indicates a lack of business integrity that seriously and directly affects the present responsibility to perform any contract awarded by the Federal Government or a subcontract under such a contract.”

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