Auditors Question Blackwater Contracts: But Is It Really $107 Million?

By Elizabeth Olson | Blackwater Worldwide, the contractor whose provision of private security in Iraq has been under scrutiny, and its affiliated companies may have improperly obtained more than $100 million in contracts meant for small businesses, according to federal auditors.

A report by the Small Business Administration’s inspector general, issued in July, found that Blackwater and its affiliates, including Presidential Airways, won 39 contracts in the fiscal years 2005, 2006 and 2007 despite indications that the companies employed more than the number specified by the U.S. government. In some cases, the report said, the companies also had higher revenues than allowed for a small business.

Blackwater is a major provider of security for American diplomats in Iraq and was the subject of a congressional hearing after a Blackwater shooting in Baghdad last September left 17 Iraqis dead.

Blackwater and Presidential Airways, both based in Moyock, North Carolina, and owned by EP Investments, of McLean, Virginia, won 31 contracts set aside for companies with revenues of $6.5 million or less, and one additional contract for a company with no more than $750,000 in annual revenues. Those contracts, in all, were valued at $2.1 million.

In addition, Presidential Airways, which carries both passengers and cargo, won some $107 million in contracts reserved for companies whose revenues were no more than $25.5 million or had fewer than 1,500 employees.

Although most of the challenged contracts were awarded by the Defense Department, the initial determinations of whether the companies qualified as small businesses were made by the Small Business Administration.

The companies could have skirted small business size criteria because they counted many workers as independent contractors, not employees, which allowed them to exceed the 1,500-employee ceiling set in some contracts, according to the auditors.

The inspector general’s office found that Blackwater and the other companies’ sizes and revenues may have “involved misrepresentations,” and suggested that the agency may want to “determine whether it is appropriate for Blackwater affiliates to continue receiving small business set-aside contracts.”

When rival firms had challenged the 2006 contract for helicopter services to Presidential Airways on grounds that the company was too large, the airline provided data that 28 Blackwater-affiliated entities had a total of only 715 employees.

But the inspector general found that Blackwater had hired more than a thousand independent contractors and treated them as if they were regular employees, with scheduled shifts, for example, which called the size determination into question. The report also said the Small Business Administration should have “attempted to reconcile discrepancies” in the data Blackwater provided.

Anne Tyrrell, Blackwater’s spokeswoman, called the report “unnecessarily speculative,” and said the “classification of security personnel as independent contractors is reasonable, correct and legally protected.” She said that “all contracted personnel serving on government contracts in Iraq for Blackwater work under the direct operational control of the United States government.”

The report, which was requested last March by Representative Henry A. Waxman, Democrat of California who heads the House Oversight and Government Reform Committee, asked the inspectors general of the Defense Department and other contracting agencies to “review these contracts to determine whether misrepresentations were made” to obtain them.

In a letter to Waxman, the SBA said it had relied on the figures provided by Blackwater and Presidential Airways.


~Chip’s note: The SBA IG report states that these small business contracts “could have involved potential misrepresentations by Blackwater.” The SBA IG report states that Blackwater “obtained a total of33 contracts during Fiscal Years 2005 through 2007, totaling $2,188,620, which may have involved misrepresentations to obtain the contract.” The report also finds that “it is possible that misrepresentations took place” on the remaining six contracts, totaling $107,311,356.