Blackwater: A ‘small’ firm by government rules

Federal Times (2007-11-13) Elise Castelli

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By ELISE CASTELLI

November 12, 2007

Blackwater USA got $600 million in federal contracts last year and more than $1 billion since 2001. But that doesn’t disqualify it from government contracting preferences as a small business. According to the government’s contractor registry, Blackwater’s aviation services subsidiary, Presidential Airways, is a veteran-owned small business. This makes it eligible for small-business set-aside competitions, which are designed to help small companies struggling to get government work.

In 2007, the government spent $36.7 million on Presidential Airways services, up from $10 million the year before, according to the Federal Procurement Data System.

The Small Business Administration decides what is a small business. For an aviation services company, a small company is one with fewer than 1,500 employees. SBA does not consider revenue as a criteria.

Blackwater’s Presidential Airways claims to have fewer than 1,500 based on its assertion that 1,000 of its employees are independent contractors and not employees. Blackwater would not disclose how many employees Presidential Airways has. SBA spokeswoman Christine Mangi could not say how many employees the company has because it is proprietary information, but SBA supports Blackwater’s claim that it is fewer than 1,500.

Blackwater made the same claim in its tax filings with IRS, saying the bulk of its employees are independent contractors. Blackwater was defending its decision not to pay Medicare, Social Security and income taxes on their behalf. In March, the IRS rejected that claim and ruled the so-called contractors are employees on grounds that Blackwater can direct not only what work they do, but how they do it.

Blackwater is appealing the IRS ruling.

Sen. John Kerry, D-Mass., chairman of the Senate Small Business Committee, asked SBA Administrator Steve Preston in a Nov. 1 letter to explain how the agency justifies its decision to consider Presidential Airways a small business.

“The emergence of companies working in combat zones like Blackwater certainly presents a new challenge to SBA’s size determination process,” Kerry wrote. “It would be helpful to me to know whether the SBA has a formal policy about how to deal with the status of workers in combat zones in future procurements.”

Blackwater claims the small-business status of Presidential Airways was used only for a single federal contract. It does not apply to future procurements or the security arm providing diplomatic protection in Iraq, said Anne Tyrrell, a Blackwater spokeswoman.

Blackwater also never relied on the SBA size ruling as support for its tax determination, and the company is cooperating with Kerry’s requests, she said.