SBA Rescinds GTSI's Federal Suspension; CEO Out

The Small Business Administration lifted the temporary federal contract suspension it had imposed on GTSI earlier this month, but it comes at the cost of its CEO and general counsel, who resigned as one of the stipulations to lift the suspension.

The move allows GTSI, a Herndon, Va.-based government solution provider, to immediately resume full business with the federal government, while the board of directors conducts a search for a new CEO. Sandra Gillespie, a senior vice president, and Peter Whitfield, senior vice president and CFO, have been named acting co-CEOs until a permanent CEO is named.

"The cloud of uncertainty that was hanging over our employees, creditors, shareholders and partners has been removed, and we can get back to the business of serving our government clients," said John Toups, chairman of GTSI's board of directors, in a statement.

The SBA had suspended GTSI's federal contracting authority, alleging that the $762 million reseller, No. 82 on CRN's 2010 VAR500 list, violated rules intended to benefit small businesses, specifically that the Herndon, Va.-based VAR had served as a subcontractor for the Department of Homeland Security's FirstSource contract, which is a "100 percent small-business set-aside" for companies with fewer than 150 employees.

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Under the agreement between the SBA and GTSI, Scott Friedlander had to voluntarily resign as president CEO and director and no longer be employed by GTSI or involved in its supervision or oversight. In addition, Charles DeLeon, senior vice president and general counsel, also had to voluntarily resign as part of the agreement. GTSI also agreed to suspend three employees: Tom Kennedy, Scott Schmader, and Patrick Berg, as part of the settlement.

Next: GTSI Agrees To SBA-Approved Monitor To Ensure Compliance

In addition, GTSI has agreed to immediately cease working with small businesses serving as prime contractors and also to stop participating in the SBA's mentor-protege program and in joint ventures with small businesses, according to the agreement.

GTSI must also bring in an SBA-approved monitor to report to the SBA on GTSI's compliance with the agreement and applicable government contracting laws and regulations.

Other stipulations include: • GTSI must create and fill the position of an Ethics Officer within 15 days who is responsible for managing all aspects of GTSI's business ethics program. • GTSI must adopt a written code of business ethics that must be approved by the SBA. • GTSI must circulate the code of business ethics to each employee, who are instructed to sign and register that he or she reads and understands the code. • GTSI must institute and maintain a program to ensure that all employees are aware of applicable laws and regulations. • GTSI will conduct an annual internal audit for compliance with the code of business ethics.

"Now that the SBA has lifted the suspension we are looking forward to getting back to helping our customers meet their mission," said Gillespie in a statement. "As a result of the action taken by the SBA, we will be enhancing our compliance activities and implementing a rigorous process to regularly report to the SBA on our actions. For nearly three decades, government has come to rely on GTSI, and our employees are ready to get back to work and prove that trust was not misplaced."

The SBA's investigation into GTSI's subcontracting practices is ongoing and could result in administrative, civil or criminal penalties, according to GTSI.