While that was an instance of ADS working as a subcontractor, it has directly won many other federal contracts, some exclusively set aside for small businesses. For companies working in Atlantic Diving Supply’s industry, the relevant size standard set by the SBA is its number of employees. To be considered a small business it has to employ 500 employees or fewer.
But as the company grew, it allegedly found ways to get around this. The crux of the whistleblower lawsuit against Atlantic Diving Supply, brought by an anonymous former employee and an anonymous consultant, claimed the company evaded this eligibility restriction by concealing its affiliation with a number of other companies that it actually controlled.
Had the government known the other companies were actually controlled by Atlantic Diving Supply, and totaled the combined company’s staffing numbers accordingly, Atlantic Diving Supply would have been deemed ineligible for contracts that the federal government sets aside specifically for small businesses, the whistleblower suit alleged.
The complaint details seven other businesses that were part of the alleged scheme.
For instance, the lawsuit states about a company called MJL Enterprises, “ADS has used MJL simply as a ‘pass through’ entity in order to illegally win” service-disabled veteran-owned small business set-aside contracts. It notes that MJL also was at one time based at Atlantic Diving Supply’s former address. MJL settled claims in the whistleblower lawsuit for $400,000.
The lawsuit goes on to state about another company, called Iron Brick Enterprises, that “Iron Brick shares common management with ADS” and its address is the same as another business started by Hillier.
This spring, both MJL and Iron Brick obtained Paycheck Protection Program loans. According to Small Business Administration data, MJL obtained a loan worth between $150,000 and $350,000, and Iron Brick obtained one worth between $350,000 and $1 million.
MJL and Iron Brick did not respond to requests for comment.
The whistleblower suit extensively cites the Small Business Administration’s affiliation rule, which says that if separate companies are substantially controlled by the same management, they can be seen as affiliated—in other words, as just different parts of one common entity.
The rule was recently the focus of lobbying by various interests when Congress created the Paycheck Protection Program. The coronavirus relief law creating the PPP carved out loopholes so some companies would not have to abide by the affiliation rule, and killed off a more restrictive version of the rule. The law also suspended “the ordinary requirement that borrowers must be unable to obtain credit elsewhere,” although “borrowers still must certify in good faith that their PPP loan request is necessary,” according to the Treasury Department. This change opened the door to businesses owned by larger companies or that have wealthy investors to receive Paycheck Protection Program loans.
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