D.C.-Area Company Is Stripped of “HUBZone” Designation by SBA

While we support the various programs for granting preferences in federal contracting to companies in traditionally disadvantaged groups such as women, minorities, and disabled veterans, it is also critical that potential contractors not abuse the preferences that Congress has granted.

Although this type of abuse is not nearly as common as some in the media seem to believe, it does occur. When it occurs, it gives a bad name to the thousands of legitimate contractors out there that are simply trying to survive and prosper by getting government work.

While we don’t know many of the underlying facts, which are not public, and can’t prejudge a proceeding that may still be ongoing, it’s noteworthy that D.C.-based Strong Castle Inc., formerly known as Signet Computers Inc., was recently stripped of its certification as a small business operating in a “historically underutilized business zone” or HUBZone.

The Small Business Administration made this determination in a May 23, 2013, letter to Strong Castle, amidst allegations by Rep. Darrell Issa (R-Calif.) that Strong Castle engaged in contract fraud regarding the HUBZone designation and other matters. Strong Castle received nearly $500 million in Internal Revenue Service technology contracts last year, and Issa has been looking into allegations earlier this year that the CEO of Strong Castle, Braulio Castillo, may have had a personal relationship with a top IRS contracting official.
Issa also referred to allegations that Strong Castle may have been actually based in Leesburg, Va., but may have used a D.C. Chinatown row house in a HUBZone as its headquarters address in order to gain certification. Castillo has denied all impropriety.

A month before, the Government Accountability Office had denied a protest by bidders who had lost out to Strong Castle in a bid solicitation. Those bidders had raised questions about whether Signet was actually not qualified for HUBZone status, but the GAO rejected those concerns.

The SBA isn’t releasing its letter to Strong Castle citing the grounds for stripping it of its HUBZone certification, since it claims that the letter contains confidential business information.

Whatever the underlying facts may be, the Strong Castle saga just underscores how important is it is for contractors to scrupulously fulfill the requirements of the government set-aside and contract preference programs. Companies that are uncertain about these constantly changing requirements are well advised to consult qualified legal counsel.

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