July 29, 2008— -- The controversial security contractor Blackwater Worldwide is in the spotlight again after federal investigators found that the company may have misrepresented its number of employees in order to obtain more than $100 million in contracts.
A memorandum by the Small Business Administration's Office of Inspector General raises questions about the agency's determination that Blackwater security personnel were independent contractors instead of Blackwater employees, as well as Blackwater's claim to be a small business.
"Blackwater or its affiliates obtained…a total of 39 contracts that were set aside for small businesses even though the bidder may not have met SBA's criteria to be considered a small business," the report said.
Congressman Henry Waxman (D-California), chairman of the House Oversight and Government Reform Committee, requested an investigation in March into the possibility that Blackwater "improperly exploited this "independent contractor" designation." According to Waxman's request, "Blackwater obtained small business contracts without competing with other qualified bidders that properly designated their guards as employees."
Blackwater is one of the country's largest private military contractors and has received almost $1.25 billion in federal contracts since 2000, according to Waxman's letter to the Committee on Oversight and Government Reform. Blackwater's web site says it was founded in 1997 and provides security for U.S. officials in Iraq "so that troops can focus on the military task at hand."
The IG report is critical of both Blackwater and the SBA saying that when Blackwater claimed that the 1,000 security personnel it provided under the State Departmen's $1.2 billion Worldwide Personal Protective Service contract were independent contractors, the Small Business Administration "did not adequately explain its reason for concluding that the security personnel on the DOS contract were independent contractors." The report also said the SBA "failed to consider Blackwater's own contract with its security personnel, which states that Blackwater is an "employer" for purposes of the Defense Base Act."
With regard to Blackwater, the report said the company might have made false statements about its status as a small business in order to obtain the contracts. The Inspector General said it found one small business set-aside contract that was supposed to go to a company with 500 or fewer employees, but which went to Blackwater Lodge and Training Center, Inc. in June 2007.
The report said that other contracts "may have involved misrepresentations," but concluded that the agencies involved should review the contracts to make further determinations. It also said that since Blackwater affiliates will likely bid on other contracts in the future, the SBA may want to "determine whether it is appropriate for Blackwater affiliates to continue receiving small business set aside contracts."
According to the report, the SBA received several complaints from bidders that did not win a small business set-aside contract for helicopter services from the Department of Navy, Military Sealift Command. The bidders, Geo-Seis Helicopters, Gold Coast Helicopters, and Pacific Helicopter Tours, Inc., argued that the Blackwater affiliate that won the contract wasn't eligible for small business status because it had more than 1,500 employees. The companies have not returned calls from ABC News seeking comment.
Blackwater didn't respond to ABC News, but a statement quoted in the AP said Blackwater spokeswoman Anne Tyrrell said that "expert accounting and outside legal counsel have determined that Blackwater's classification of security personnel as independent contractors is reasonable, correct and legally protected."