- The Washington Times - Monday, March 31, 2008

Federal contracting officials signed off on millions of dollars in work last year to a Washington-area security contractor weeks after it was suspended by the General Services Administration and months before two top former executives were charged in a massive bribery and tax scam, government records show.

The largest job, for $11.6 million, authorized USProtect Corp. to guard U.S.-based Air Force installations and was signed two weeks after the company was suspended by the GSA, records show. In addition, the U.S. Marshals Service signed a six-figure modification on a contract to protect federal courthouses three days after the suspension.

The suspension over billing practices lasted about three months while the GSA weighed a recommendation from its own inspectors to debar the Silver Spring-based company. Ultimately, the GSA decided against putting USProtect on the government’s blacklist of thousands of businesses and people excluded from contracts.

Experts say the situation shows that even a suspension or debarment doesn’t always mean losing out on government business, and companies can continue working on existing contracts after getting suspended.

“Whether the government suspends or debars a company, it generally has no impact on the company’s ongoing contracts with the government,” said Steven L. Schooner, a contracting expert at George Washington University Law School. “While a lot of people find that disconcerting, the reality is that the government has missions and ongoing contracts are critical.”

Ten months after the GSA lifted the suspension, USProtect has collapsed amid a financial scandal leaving hundreds of security guards it hired unable to cash their paychecks, while two former company executives and a former GSA official face prison time in an unrelated investigation. A company attorney did not return telephone calls last week and an answering machine said USProtect “has ceased operations.”

In December, the company defended its performance when first questioned by The Washington Times about its operations, saying in an e-mail it had “consistently provided superior security services to a broad array of federal agencies.” It said its “outstanding performance” had repeatedly been acknowledged “both formally and informally.”

Marshals Service spokesman Steve Blando said agency officials would not have signed off on a contract modification with USProtect three days after the GSA’s April 16 suspension order if they had known about the company’s legal troubles.

However, he said, the GSA has five days to post the suspension on a government database, and so the Marshals Service only learned of it through the U.S. Attorney’s Office in Maryland within days of signing the modification.

“It is the [Marshals Service] position that the suspension would have applied in this case had we been aware of it prior to signing the contract modification,” Mr. Blando said. “We took the action in good faith not knowing they had been debarred.”

Mr. Blando also said the sudden collapse of USProtect hasn’t jeopardized security at federal buildings because new contractors have been hired to take over the company’s contracts. USProtect guards are being hired by the new companies, he said.

The GSA did not respond to questions about when other agencies were notified about the suspension order, but a spokesman cited rules that said awarding contracts or adding new work to existing contracts is generally prohibited, though an agency head can provide a waiver if the award is in the public interest. However, the agencies are not required to notify the GSA about whether a waiver is issued.

The Air Force defended its decision to continue awarding work to USProtect. Spokeswoman Lt. Col. Jennifer Cassidy said the Air Force signed off on the $11.6 million modification on March 26, 2007, two days after USProtect signed the deal, and that USProtect wasn’t suspended until April 16 — so the Air Force acted properly because the company wasn’t excluded from contracts when contract papers were signed.

But federal contracting records available through www.usaspending.gov, an online federal clearinghouse of contract and grant awards, shows the USProtect deal with the Air Force became effective last March but was signed on May 2, two weeks after the suspension.

The Air Force deal was one of many lucrative contracts that fueled USProtect’s fast rise in recent years. Records show the federal government paid the company $135.4 million in fiscal 2007, up from $815,000 in 2001 and $11.2 million in 2002.

Scott Amey, general counsel for the Project on Government Oversight, a nonprofit group that studies federal contracting practices, said USProtect isn’t the only example of a company winning contracts despite a suspension or debarment.

In recent years, Mr. Amey said, a division of Boeing was able to win new work through special waivers granted by federal officials, and WorldCom had its debarment lifted.

“You can probably count on one hand the number of times a big company gets debarred,” he said. “They’ve got better legal staffs, and there’s more of a reliance on them than small businesses. It’s also easier for them to fire and change management and spend money on internal compliance.”

The temporary suspension wasn’t the only red flag last year involving USProtect, which collapsed after a bank and two other creditors forced the company into bankruptcy.

Court records show the company settled a False Claims Act investigation in 2006 into its billing practices on a federal contract years earlier. Last fall, founder Michael Holiday and former Chief Operating Officer Richard Hudec were charged in a bribery and tax scam that U.S. Attorney Rod J. Rosenstein in Maryland called one of the biggest public corruption cases in state history.

Hudec pleaded guilty to tax evasion and concealing information from federal contracting officials, including four felony convictions. Despite his record, authorities say he was able to help broker tens of millions of dollars in contracts for the company.

Holiday, who sold the firm to Hudec’s wife in 2003, pleaded guilty last year to bribing for contracts former GSA contracting official Dessie Ruth Nelson with tens of thousand of dollars and a cruise. Miss Nelson also pleaded guilty and is cooperating with investigators. Hudec, Nelson and Holiday are awaiting sentencing.

According to records previously released by the GSA and obtained by The Times, the GSA suspension was prompted by a settlement in 2006 between the Justice Department and USProtect over a false claims investigation about the company’s billing practices on a U.S. Immigration and Naturalization Service contract in 2001 and 2002.

The INS contract called for USProtect, then known as Holiday International Security, to supply one guard for every detainee. But the Justice Department said it had evidence to show the company was supplying one guard for every two inmates while billing for the correct ratio, according to court records under the 2006 settlement. Under the settlement, USProtect denied any wrongdoing and agreed to pay $80,000.

In an April 16 letter to the company, GSA’s suspension and debarment office said information “indicates that USProtect lacks the present responsibility to be a government contractor.”

In response, attorneys for USProtect said it disputed the accusations and said the case stemmed from activities that took place more than five years earlier. The response also noted, “USProtect has taken concrete steps to ensure that similar events do not occur.”

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