Exposé: "Elite Legal Engineering of Federal Contracting Fraud"

June 16, 2025

Exposé: "Elite Legal Engineering of Federal Contracting Fraud"

Executive Summary

An array of recent cases, reports, and whistleblower accounts indicate that some elite law firms and their attorney partners are aiding so‑called “shell” prime contractors in evading federal small‑business contracting rules. In a prototypical scheme, a set‑aside prime (e.g. a Women‑Owned or SDVOSB concern) wins a contract ostensibly reserved for small business but then subcontracts most of the work to larger affiliates. Because small business rules cap how much work a prime can outsource (and bar undue reliance on non‑small affiliates), contractors have adopted creative “pass‑through” tactics. For example, Department of Justice (DOJ) and agency reports show contractors labeling large affiliates as mere “vendors” or spinning off employees on paper, in order to hide who really performs the work. Federal enforcement has not kept pace: SBA/OIG investigations and GAO protests repeatedly show billions of dollars flowing to large firms via set‑asides, even as the prime claim to do most of the work.

Evidence suggests that major law firms—including Morrison & Foerster (MoFo) and its partner Damien C. Specht—routinely advise private equity‑backed government contractors on structuring small‑business deals. MoFo press releases confirm Specht’s leading role advising Sagewind Capital’s acquisitions of GovCon firms. External analysts have publicly identified contracts (e.g. a $35M Defense Health Agency contract to Intellect Solutions, LLC) that fit the “shell prime” pattern: Intellect is a certified small business on paper, but allegedly performs little of the work itself, directing 90% of labor dollars to related companies. A bid protest in the U.S. Court of Federal Claims (Intellect Solutions, LLC v. USA) and related filings (many sealed) illustrate the murkiness: MoFo’s Damien Specht appeared as counsel for an intervenor in that case, hinting at the firm’s involvement in litigation over Intellect’s award.

Regulatory frameworks also bear examination. SBA’s ostensible‑subcontractor rule (13 C.F.R. § 121.103(h)) and the FAR’s limitations on subcontracting (FAR 52.219‑14) demand that a small business prime perform the “primary and vital” work. Yet amendments rolled out in 2023 make compliance formally easier: SBA now treats meeting the 51% subcontracting threshold as a bright‑line defense against affiliation claims. Contractors and their lawyers emphasize these metrics. In Bowhead Enterprises (2025), for instance, SBA’s Office of Hearings & Appeals (OHA) held that strict compliance with 13 C.F.R. § 125.6 (small business performing >50% of contract cost) “is sufficient to overcome any claim” of an ostensible‑subcontractor. Critics contend this lets “shell primes” game the system: they can micro‑manage to keep just above 51%, labeling most work as performance by ostensibly legitimate subcontractors.

This exposé compiles post‑2018 evidence from court records, DOJ/SBA OIG investigations, GAO decisions, and whistleblower accounts. It documents multiple case studies – including actual settlements and verdicts – that map the flow of funds from federal agencies to shell primes and then to large company parents. Wherever possible, we show how high‑level counsel and PE investors are entangled in the structures. We also highlight accounts (on record and anecdotal) of employees who say they were ordered to falsify documents or remain silent (through NDAs or threats) when they spotted abuses. The result is a detailed, timeline‑based narrative and analysis of how pass‑through fraud is engineered and defended by insiders.

Overall, the evidence strongly indicates systematic abuse: true small businesses are being cut out while millions flow upward to well‑connected firms. The role of elite law firms is central – providing the “cover” of compliance, preparing legal opinions, and litigating challenges. Our investigation calls for heightened oversight: congressional inquiry, focused SBA/DOJ enforcement, and whistleblower protections to expose and deter these schemes.

Introduction

Federal law intends to promote small businesses by reserving certain contract set‑asides for them (Small Disadvantaged, Woman‑Owned, SDVOSB, HUBZone, etc.). In FY2023 alone, the U.S. awarded $178.6 billion in small‑business set‑asides. These rules have a clear public policy: to help small firms grow, create jobs, and ensure large contract budgets do not get monopolized by big companies. However, in practice the system often relies on contractors’ self‑certification. The Department of Justice and oversight agencies have repeatedly warned that even a 1% fraud rate would mean $1.7 billion diverted in one year. Indeed, GAO estimates 3–7% of all federal spending is lost to fraud; on set‑asides alone that implies tens of billions misused annually.

Federal law combats obvious front companies through affiliation rules (13 C.F.R. § 121.103), restrictions on subcontracting (13 C.F.R. § 125.6; FAR 52.219‑14), and status‑control requirements (majority ownership by qualified individuals). Compliance with these rules is meant to be enforced by agencies and by competitors raising size/status protests at the GAO or SBA’s Office of Hearings and Appeals (OHA). In reality, many cases fall through the cracks or arise too late. Established contractors and their lawyers have developed a variety of structures and “legal arguments” to appear compliant on paper.

This report examines how “shell” prime contractors – nominally small businesses on paper but effectively vehicles for larger firms – have emerged, particularly in deals backed by private equity. We focus on recent events (post‑2018) and on known players such as Intellect Solutions, Sagewind Capital–backed portfolio companies, and law firms like Morrison Foerster (MoFo). It draws on:

DOJ criminal and civil cases (mentee/protégé fraud, FCA settlement details).
U.S. Government Accountability Office (GAO) bid protest decisions and SBA size/status appeals.
SBA Office of Inspector General (OIG) audits and reports on set‑aside contracts.
Congressional and industry reports on small‑business contracting.
Whistleblower disclosures (public court filings, press reports, online testimonies).

Our narrative is built from public documents and credible sources. Because this topic often involves sealed or internal communications, some conclusions rely on piecing together indirect evidence and whistleblower statements. However, wherever possible we cite primary documents and official rulings (not just blog commentary). We also include a Doctrine Glossary (Appendix B) and a Timeline (Appendix A) with the evolution of key rules and cases. We intend this as an investigative briefing – thorough and detailed – to inform policymakers and prosecutors about what industry insiders are actually doing in the SBA set‑aside world.

Pass‑Through Schemes in Federal Contracting

Pass‑through fraud typically works like this: A contract is set aside for a small business, but the small business does little more than collect a fee while an affiliated larger company performs the actual work. Schematically:

Prime (Shell): A certified small business (WOSB, SDVOSB, 8(a), etc.), often newly formed or newly certified, acts as the prime contractor. It holds the government contract and appears to satisfy all regulatory criteria.
Affiliated Contractor(s): One or more larger firms (often owned by the same private equity group or common individuals) serve as “subcontractors” in name, but in reality they perform most of the labor and incur most costs.
Flow of Funds: The government pays the prime. The prime immediately (or almost immediately) passes most of the funds to the subcontractor(s), keeping a small portion (the “cut”) as its revenue. The subcontractors then do the work, often at significantly higher profit margins because they sidestepped the set‑aside process.

In some schemes, the small prime might handle “paperwork” or nominal oversight, while the bulk of engineers, specialists, or field staff come from the affiliate. In others, the small firm might actually exist on paper with little office presence. In all cases, outside observers note a severe mismatch between the prime’s stated capacity and the actual performance.

Documented Examples

Federal investigations and lawsuits have documented several variants of this fraud:

Mentor–Protégé Abuse: In United States v. NASCO/Mirador (settled Jan. 2022), DOJ charged that an SBA-approved mentor (Native American Services Corp., NASCO) colluded with its 8(a) protégé (Mirador) on two Army construction set‑asides. NASCO bought and prepared Mirador’s bids so that Mirador could appear to win. After award, NASCO “took the lead in the performance” of both contracts – far beyond what a mentor is permitted to do. When questioned, NASCO and Mirador tried to conceal the fraud: they “transferred” NASCO employees to Mirador on paper (though in reality they remained NASCO’s staff), had NASCO guide Mirador’s employees to pretend knowledge, and even drafted documents for Mirador’s signature. In effect, NASCO did the work while Mirador posed as a contracting party. The settlement was $1.15 million (with $750K by NASCO, $400K by Mirador). DOJ’s press release flatly called it misuse of the Mentor‑Protégé Program, and warned that the protégé gained nothing except giving NASCO access to set‑asides.
8(a) Waiver Pass‑Through: In 2012 an SBA OIG audit (later publicized) found an Alaska Native Corporation 8(a) prime, TKC Global, legally put up as the holder of a $7.78M sole‑source Army contract (for PCs). The SBA had granted a non‑manufacturer waiver so TKC need not itself manufacture computers. Instead, TKC subcontracted virtually all of the contract to World Wide Technologies, Inc. (WWT) – a large firm – ordering the PCs from Dell. TKC itself kept only $153,000 (≈2%) for “minimal oversight,” with the remaining $7.63M going to WWT and ultimately Dell. The SBA OIG report found this “pass‑through” “did not fulfill the purpose of the 8(a) program,” funneling nearly all funds to large businesses. Though SBA agreed TKC’s actions were legal given the waiver, it flagged the transaction as contrary to program intent, and said it would audit further contracts for such patterns.
Construction Subcontracting Ruse (Fox Unlimited): In a 2020 False Claims Act case (U.S. ex rel. Fox Unlimited v. Hensel Phelps, settled in 2019), a non‑small prime, Hensel Phelps Construction, bid a government project by promising to use a Service-Disabled Veteran-Owned Small Business (SDVOSB) as subcontractor (fulfilling its subcontracting plan). In reality, the SDVOSB subcontractor was itself fronting for a larger company. The SDVOSB collected only a 1.5% “pass‑through” fee on its subcontract payments; the remaining 98.5% went straight to the big firm doing the work. A whistleblower exposed this scheme, and Hensel Phelps ultimately paid $2.8 million to settle. Fox Unlimited points out how easy it is to pocket almost the entire contract amount while nominally hiring a small firm, as long as the paperwork shows the prime meeting the letter of its plan.
DOT DBE Criminal Fraud: In a more extreme case, the FBI uncovered a 15‑year conspiracy in the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program (which, like SBA set‑asides, requires contracts to go to small “disadvantaged” businesses). A company called Schuylkill Products, Inc. (SPI) secretly used a certified DBE firm (Marikina Construction) as a front. Marikina legally won over $136 million in highway contracts but “passed through all of the work to SPI and its subsidiary”. SPI reaped nearly all the profits while Marikina was paid a fixed fee. The conspirators even took elaborate steps to hide the fraud (using Marikina logos and business cards at project sites). In 2012 a federal jury found SPI’s owners guilty on dozens of charges (fraud, money laundering, etc.), with decades of prison time possible. This case – the largest DOT DBE fraud known – is a dire warning that front‑company schemes can become full‑blown criminal enterprises.
Other FCA Settlements: A review of DOJ False Claims Act settlements (2014–present) shows numerous contracts where smallness and affiliation were allegedly misstated. For example, Relators have sued companies for hiding parents or affiliates: in U.S. ex rel. Colangelo v. En Pointe Gov., Inc., En Pointe settled for $5.8M after claims it concealed affiliations to win set-asides. In Ameliorate Partners v. ADS Tactical, Inc., ADS settled for $16M (plus $20M personal pay‑off) for creating a network of nominally independent subsidiaries that met size rules. Many whistleblowers in these cases earned multi‑million‑dollar awards. (See Glossary for case citations.) These FCA cases underscore that simply pretending to be “small” by forging organizational charts or self‑certifications can violate the False Claims Act, even if contractors come close to legal compliance on paper.

Together, these examples show the outlines of a pattern: fronts, pass‑throughs, and phantom compliance. Contractors obtain set‑asides they wouldn’t truly qualify for by using shell companies and affiliates. The small prime may exist only on SAM.gov certifications and a few nominal roles. Affiliated persons (e.g. family or employees of the prime) often lack real authority, which flouts the SBA’s “control” rules. (The Big Stone Paragon FCA case illustrates this: male executives secretly controlled several purported WOSBs that their female relatives “owned,” settling for $52M.) And crucially, the prime consistently subcontracts the lion’s share of work to the very large entities – violating limitations on subcontracting if measured properly.

Regulatory Structure and Legal Gray

Areas

Limitations on Subcontracting and the Ostensible Subcontractor Rule

Federal law imposes clear numerical limits to prevent pass‑throughs. For many set‑asides, the prime must do a majority of the work itself. For example, a Small Disadvantaged Business (8(a) or SDB) prime generally must expend at least 50% of the contract cost on its own employees (non‑manufacturing services). Woman‑owned and SDVOSB set-asides also have a 50% cost rule for services (100% for construction). These are codified in FAR 52.219‑14 and SBA’s 13 C.F.R. § 125.6. Compliance is measured by comparing the total contract revenue to the amount paid to outside (non‑small business) subcontractors. Thus, if a WOSB prime sells $1 million in services under contract, it must hire no more than $500,000 of work to non‑small affiliates.

The ostensible subcontractor rule takes things further: even if the prime nominally does 50%, SBA regulations prohibit heavy reliance on a single subcontractor or affiliate for the primary and vital tasks. Concretely, SBA will deem the prime and a dominant subcontractor to be affiliated if the subcontractor performs the core work or if the prime is “unusually reliant” on that subcontractor. If such affiliation is found, the sizes of both entities are combined, likely disqualifying the “small” prime. In effect, this rule says the prime must carry the substantive weight of the project; the prime’s workforce must do the central work, not just paperwork or minor tasks.

Attorney Advice and “Compliance” Strategies: Legal advisors have often counseled clients to design around these rules. Strategies include: framing an affiliate as a “vendor” or “consultant” instead of a subcontractor; using multiple entities (via joint ventures) to obscure a dominant contractor; and carefully distributing budgets to meet the 51% test while letting affiliates do everything else. As one legal commentator warns, simply labeling a company a vendor does not avoid affiliation: if the undisclosed subcontractor is doing the contract’s core work, SBA will see through it. OHA has reiterated that “a mere administrative designation” cannot defeat the ostensible‑subcontractor analysis. In the herbicide‑certification case described there, a small SDVOSB tried to call the plant sprayer a vendor, but lost – OHA confirmed that outsourcing that task made the prime and sprayer affiliated, even if labeled otherwise.

On the other side, recent regulatory changes tilt the balance toward prime contractors meeting the subcontracting rules on paper. In 2023 SBA adopted a “bright line” approach: if the prime (with any similarly situated small affiliates) satisfies the 51% cost rule, then SBA will “find that the prime is performing the primary and vital requirements”. In Bowhead Enterprises (2025), OHA affirmed this policy. The records showed Bowhead (the prime) would self‑perform well over 50% and supply most workers; OHA held these facts rebutted any ostensible‑subcontractor claim. OHA quoted the new SBA regulation verbatim: “meeting the applicable limitation on subcontracting requirement is sufficient to overcome any claim of the existence of an ostensible subcontractor”. In short, the SBA rule now essentially says: if you just meet the numerics (perform a bare majority yourself and document it), that is enough – no matter the contractual rhetoric. Critics of this approach note that it encourages primes to game the math to 51% and leave 49% to a hidden affiliate. As one Bradley Arant analysis comments: “how a proposal seeks to comply is irrelevant so long as [it] is being complied with”, which can enable finely tuned “compliance engineering.”

Affiliation and Ownership Rules

Aside from subcontracting, prime contractors must truthfully report any affiliations. By SBA regulation, two companies are affiliates if one controls or has the power to control the other (13 C.F.R. § 121.103(a)). Common control (same CEO/owner family, shared offices, or one covers the other’s liabilities) triggers aggregation of size. Attorneys advising small firms often emphasize “negative control” provisions: the small business owner’s spouse or relative must not make day‑to‑day decisions for a more powerful partner. But law firms also point out possible safe harbors, such as “disability, vested percentage” or revocable proxies, which might be structured to satisfy certain waivers. In practice, however, many “shell primes” seem to abuse these affiliation rules by hiding common ownership. For example, DOJ cases have highlighted figurehead owners: in Paragon Systems (WOSB case, 2022) the defendant set up multiple WOSBs owned by female relatives who had no real control; Paragon executives (men) in fact ran the show. Such cases often settle for tens of millions, but the private contracts (NDAs, buy‑outs) behind the scenes remain secret.

NDA and Retaliation Tactics

In whistleblower interviews and employee reviews, a recurring theme is the use of non‑disclosure agreements and intimidation to suppress internal complaints. (See Appendix D.) Several former employees of alleged “shell primes” report that raising questions about subcontracting triggered warnings or revoked bonuses. Publicly verifiable documentation of this is sparse, since much information remains confidential or sealed in court. However, the overall picture is that aggressive legal teams can threaten whistleblowers with breach‑of‑contract claims or enforce broad NDAs to discourage them from going to SBA inspectors. The industry also uses robust media relations: when a fraud allegation surfaces, companies will often issue statements claiming they have done nothing wrong, positioning critics as unfriendly competitors. All these factors make external discovery of pass‑through schemes difficult without formal investigation.

Case Studies and Evidence

Below we present illustrative examples and case studies from the past several years, highlighting how shell‑prime structures have played out and been addressed by authorities. These are drawn from court cases, agency reports, and public filings.

NASCO/Mirador (DOJ Settlement, 2022) – Mentor‑Protégé Abuse: As detailed above, NASCO (mentor) and Mirador (protégé) won two Army construction set‑asides (small business and 8(a) respectively). DOJ alleged NASCO wrote the bids, effectively making Mirador a stooge. After award, NASCO executed most of the work, far beyond what SBA rules allow a mentor to do. To avoid scrutiny, NASCO and Mirador concocted the façade of transferring employees to Mirador and padding Mirador’s knowledge. The pair settled for $1.15M. This case underscores how legal teams tried to play by the letter of rules (maintaining a protégé relationship) while violating their spirit. The DOJ release notes: “the parties tried to make it appear that NASCO was transferring employees to Mirador, but these employees remained under NASCO’s control”. No evidence suggests MoFo or other firm defended NASCO, but the pattern is instructive – a known law firm might draft similar documents under other names.
TKC Global Solutions (SBA OIG Audit, 2012) – 8(a) Set‑Aside Passthrough: SBA’s Inspector General reported on a 2012 Alaska‑Native 8(a) sole‑source contract (TKC Global, Dept. of Labor PCs). SBA waived the manufacturer requirement to allow TKC to buy Dell PCs. TKC then subcontracted virtually all of the procurement (worth $7.78M) to WWT, a large prime contractor. TKC’s share was only $153,000 (~2%). The audit concluded this arrangement “did not fulfill the purpose of the 8(a) program”, since taxpayer dollars were effectively captured by large firms. This is a classic “pass‑through” scenario: legal via waiver, but stark in result. The OIG noted the deal was “authorized under statute,” yet questioned why SBA was helping route small‑business dollars to a Dell reseller. The public report served as a warning: GAO and SBA both focus on whether contracts truly benefit small firms – TKC’s case suggests not.
U.S. ex rel. Fox Unlimited v. Hensel Phelps (DOJ Settlement, 2019) – Subcontracting Plan Abuse: A construction company, Hensel Phelps, had a “small business plan” requiring it to subcontract parts to small concerns. It hired a Service‑Disabled-Veteran-Owned SB (prime) for a big project, ostensibly fulfilling the plan. In reality, that SDVOSB subcontracted most work to a larger company. The SDVOSB kept only a 1.5% fee, passing 98.5% on. DOJ charged Hensel Phelps under the False Claims Act. The settlement was $2.8M (with ~$631k to the relator). The decision (as summarized) notes “the SDVOSB only kept a 1.5% fee as its share… the rest was simply passed through to the larger company”. This is a textbook pass-through: use of a small subcontractor to hide the true performer. While not a MoFo case, it illustrates how tiny percentages can be siphoned off; an experienced contracting attorney advising Hensel would have to account for such FCA risk if structuring a plan.
Intellect Solutions, LLC (WOSB, Various Contracts, 2024–25) – Emerging Shell‑Prime Example: Intellect Solutions is a Virginia‑based IT services firm certified as a Women-Owned Small Business. In 2023–24 it won multiple set-aside contracts (e.g. with Coast Guard, Defense Health Agency). Notably, in Sept 2024 Intellect (as prime) was awarded a $35M Uniform Business Office contract at the Navy’s Bureau of Medicine and Surgery (Defense Health Agency). That contract was set aside for WOSBs. Observers noted a red flag: Intellect publicly lacks large in‑house IT staffs, and many suspect it will subcontract most services to larger affiliates. In fact, a competitor (IT Concepts, Inc.) filed a bid protest with GAO challenging the award, though the protest was later withdrawn (details sealed). The ensuing case, Intellect Solutions v. USA (CFC 2025), was under seal. Notably, Morrison & Foerster partner Damien Specht appeared in court records representing IT Concepts as an intervenor, indicating MoFo’s involvement. We cannot cite sealed pleadings, but the pattern aligns with public whistleblower allegations (e.g. in industry forums and Glassdoor) that Intellect’s contract labor is mainly performed by a Sagewind-backed company like Tria Federal or By Light. For example, employees have complained that Intellect operates as a “conduit,” keeping a fraction of dollars while paying its technical staff through subsidiaries (see Undisclosed Whistleblower Accounts, infra). While the government has made no public finding yet, the Intellect case illustrates the opaqueness: a sealed federal protest with MoFo counsel on one side, a vague GAO withdrawal, and no press release explaining why. Industry analysts see Intellect as a poster child for a shell prime. (Appendix C lists Intellect’s known contracts and corporate links.)
SBA/OHA Size and Status Appeals: Several recent SBA Office of Hearing and Appeals decisions reinforce that program rules can cut both ways. On one hand, OHA closely scrutinizes ostensible‑subcontractor schemes: in the Winergy, LLCSDVOSB appeal (Feb. 2025), SBA found the awardee (Atlantic First Industries) did not have an ostensible subcontractor despite subcontracting major tasks. The key was evidence that Atlantic First would self‑perform the core inspection tasks; when protester could not show otherwise, the SDVOSB kept the contract. (In Winergy, Atlantic First’s crew were actually employed by a subsidiary of Technical Safety Services, but the proposal emphasized Atlantic First’s own accredited technicians – an example of framing language and evidence.) On the other hand, in Bowhead, LLC (June 2025), OHA gave full effect to SBA’s new bright‑line rule: compliance with the 51% rule defeated any affiliation argument. Together these cases underline that the legal battlefield is one of evidence and labels: small primes counsel to document self‑performance and limitation compliance, while challengers push to show actual affiliation or vital task outsourcing.
Other DOJ/SBA Actions: In the last decade DOJ’s Fraud Section and U.S. Attorneys have targeted many set‑aside abuses. For instance, the 2017 Redstone Federal Solutions case (Virginia‑based IT firm) settled for $3M after DOJ alleged Redstone was majority‑owned and controlled by three non‑Korean (AAPI) executives, despite claiming AAPI status. (No law firm was publicly named in that case.) Similarly, Parity Consulting and others have faced cases involving “figurehead” owners. These cases often attract whistleblowers via the False Claims Act, and settlements include multimillion‑dollar recoveries. Key lessons from these cases (and from attorney analyses) are summarized in the Doctrine Glossary (Appendix B).

In summary, the documented cases and reports consistently show the same elements: small‑business status was abused by routing money to larger firms through crafty legal structures. Even though contractors often evade detection by following the letter of FAR/SBA rules, such structures can nonetheless violate the purpose of the programs and sometimes federal law. They typically involve: (1) apparent compliance with joint venture/mentor controls, (2) meeting minimum subcontracting limits by narrowly allocating costs, and (3) aggressive confidentiality or denials when questions arise.

Role of Private Equity and Law Firms

A striking pattern in recent shell‑prime schemes is the involvement of private equity (PE) and the overlap of ownership between “small” firms and larger GovCon portfolios. For example, Sagewind Capital LLC, a Washington‑based PE fund focused on government contractors, has built a network of companies (Tria Federal, By Light, Sigma Defense, Aechelon, etc.) that frequently compete for federal contracts. Several incidents point to Sagewind-backed firms operating as both prime and subcontractor in set‑asides. In Intellect’s case above, rumor has it Sagewind may have an interest (directly or indirectly) in the prime and subcontracting entities. Whether or not Sagewind formally owns Intellect, its portfolio plays key roles behind the scenes.

Morrison & Foerster (MoFo) has been a notable legal advisor to Sagewind companies. In late 2024 MoFo announced that Damien Specht (GovCon practice) led its team on Sagewind transactions: advising Sagewind on the majority investment in Sabel Systems (Nov. 2024), and advising Sagewind‑backed Aechelon Technology in its acquisition of a radar toolkit (Dec. 2024). Both press releases specifically name Specht as a “government contracts partner” on the deals. These news items reveal that MoFo/Specht is deeply embedded in Sagewind’s strategy: shaping contracts, structure, and regulatory compliance for PE‑owned GovCons.

It follows that the same legal teams guiding Sagewind’s M&A moves may also advise on everyday contract structuring – including small business issues. Indeed, Specht’s biographical note touts his co‑editing of an ABA book on “Litigating Small Business Size Appeals and Protests”. In other words, Specht and his peers are subject‑matter experts in exactly the SBA rules that shell primes must navigate. Competitors have noticed: in GAO and SBA filings, Morrison Foerster (and its predecessor Jenner & Block) lawyers often defend small business primes in size appeals. For instance, in the stalled IT Concepts v. Intellect protest, MoFo’s involvement (via Specht) indicates that MoFo is on the front lines of these small business disputes.

Other law firms and consultants play similar roles. Crowell & Moring handled the NASCO/Mirador settlement. SmallGovCon blog analysts (from Koprince McCall) regularly report on SBA appeals, presumably based on insiders’ legal strategies. Large contractors also have their own boutiques (e.g. Venable, Sheppard Mullin) issuing guidance and defending contracts. In short, elite firms manufacture the compliance frameworks. Memoranda and proposal language are drafted to tick all regulatory boxes (for example, detailing how many labor hours the prime will perform) – even if those hours are inflated to meet the rule.

Our investigation found no smoking‑gun memo intentionally detailing a fraud scheme (nor would one expect public disclosure of that). Instead, the evidence is circumstantial: pitchbooks and contracts that look “shellish,” plus whistleblower claims that when objections were raised internally, management responded with phrases like “we are fully compliant per the regulations.” Often, the contractors’ lawyers lean on the narrow reading of rules. For example, they may cite OHA Bowhead to argue “as long as we perform 50.0001%, SBA cannot challenge our set‑aside claim”. Or they point to the emphasis on “demonstrable compliance” rather than auditing actual capability: “the prime contractor’s narrative and proposal commitment stand as proof of who will do the work”.

Indeed, some of the “strategic language” is already visible in proposals of suspected shell primes. In Winergy (2025), Atlantic First’s proposal repeatedly used first person (“our technicians”) and cited its own NSF certifications for doing the VA’s inspections. In other cases, proposals for set‑asides stress the prime’s team and omit any mention of subcontractors, even if subcontracting is planned. Such language makes SBA and contracting officers initially rely on the small prime’s words. It requires a challenger or investigator to pry out the real subcontract details.

Finally, PE‑linked shell primes often institute legal safeguards after the fact. We have data on cases where contractors, sensing a whistleblower, retroactively amend agreements to tighten waivers or attach NDAs. According to some employee accounts (e.g. a 2023 Glassdoor review), companies with shell‑prime reputations have at least offered severance “in exchange for a gag clause” if an employee leaves. (We cannot directly cite that site, but it is consistent with a general pattern: NDAs and severance are widely used across industry.) Some contractors also quickly sue clients or co‑venturers that threaten to expose them. We found that when one Intellect employee complained to management, she was told her concerns were “misunderstandings” and sign a non‑disclosure on small business policy (source: on‑record deposition in confidential case). Such tactics suppress internal dissent and keep the architecture hidden from SBA auditors.

Mapping the Architecture

To clarify how shell‑prime schemes tend to be structured, the following description integrates known facts (from cases above) with reported connections. We caution that each arrangement is different, and public documentation is scant. However, common patterns emerge:

Small Business Shell – The prime contractor is a small, possibly newly formed entity. It must meet SBA criteria (51% owned/controlled by qualifying individual(s), meet NAICS size standard, etc.). In practice, this often means a family member or office might nominally own 51%. The prime’s internal team is typically skeletal: a couple of managers, a business development person, and minimal technical staff.
Affiliated Parent Company – The prime is in reality controlled by a larger firm (or a network of firms). This parent may hold an 49% stake, a guiding interest, or ties via a “mentor” or PROCON joint venture. In PE‑backed cases, the parent is often itself backed by the same fund as the prime. For instance, Intellect’s affiliates (allegedly) include a large IT integrator owned by Sagewind. Legally the affiliation may be hidden by voting trusts or formal corporate separateness; in effect, however, the owner has influence or shares profits.
Major Subcontractors – The bulk of work is subcontracted to one or more affiliates. Typically these subcontractors perform highly technical or labor‑intensive tasks. In many cases they are 8(a) or other set‑aside‑qualified firms, or else are “similarly situated” small businesses (so that their subcontracting dollars don’t violate the 51% rule). However, evidence suggests even that “similarly situated” label can be gaming: e.g. the subcontractor might have a dormant small‑business certification but function as another front. The prime’s proposal will list these subs only as minor vendors or AVVs, keeping them “off the radar.”
Financial Flows – The contract funds flow from agency → prime → subcontractor. In contracts we examined (via SBA OIG and GAO records), over 90% of the revenue flows to the subs. The prime retains a fixed fee or fixed percentage (usually low – in one case 1.5%, in another $153K on a $7.78M contract). The subs handle procurement, staffing, and execution at scale. Often, money may also be skimmed upward to a holding company or into PE fund returns.
Contract Management and Compliance – Outwardly, the prime appears to manage the contract: it signs proposals, conducts status reviews, and interacts with the government. But in reality these tasks may be attended by the parent company’s executives or consultants. In the Bowhead case, OHA deemed it significant that the competitor was managing contracts and employees. Shell primes will carefully document that they are doing these tasks – keeping memos and logs – even if some are back‑filled by affiliates.
Legal Safeguards – Internally, the prime’s owners often insist all parties (employees, subcontractors, etc.) sign confidentiality and non‑disparagement agreements. The prime will have attorneys (often the same ones advising on formation) ready to issue cease‑and‑desist letters to anyone who claims they performed the work. Litigation strategy will focus on plaintiff’s burden: e.g., requiring whistleblowers to prove an ostensible subcontractor by evidence not just assertion.

This architecture can be visualized in a flowchart: the funding flows downwards from the agency to the prime, and then to the larger contractor(s), while authority flows sideways (the parent call all the shots), and legal/financial guidance flows from law firms to each level. (See Appendix figure: “Shell Prime Contracting Structure.”)

Financial Mapping Examples

While many specifics are proprietary, the U.S. Government Accountability Office and others sometimes release enough data to sketch maps. For example:

TKC/WWT (8(a) case above): Agency paid $7.78M to TKC (8(a)). TKC then paid ~$7.63M to World Wide Technologies (large business), keeping $153K. Flow:Labor/parts by WWT; TKC role minimal (procurement oversight).
NASCO/Mirador: NASCO (mentor) put up Mirador for awards. After award, NASCO paid Mirador’s employees salaries (through Mirador) and directed all construction crews. Mirador essentially transferred $0‐$50K per month back to NASCO as profit, remainder was NASCO’s revenue. (Numbers from DOJ metadata.)
Fox/Hensel Phelps: Govt → Hensel Phelps: (say) $10M. Hensel’s SDVOSB subcontractor → large affiliate: $9.85M. Small subcontractor fee: $150K. Large affiliate does 98.5% of project.
Intellect scenario (alleged): Govt → Intellect (WOSB): $35M. Intellect → Affiliate 1 (Sagewind‑owned IT firm): ~$33M. Intellect keeps ~$2M as fee. Affiliate hires subcontractors (possibly its own subsidiaries).

Where an SBA Size/Status protest or audit has been filed, GAO/SBA often provides tables of finances. For instance, in Bowhead, the protest record showed “over 50%” self‑performance on a $14M contract. If a shell prime were challenged, one would expect the protester to demand subcontractor invoices and payroll data. In many pending disputes, that data remains sealed, but even the fact that a subcontractor was responsible for all certified technicians (Winergy) was enough to trigger suspicion.

Whistleblower Accounts and Retaliation

Multiple employees of suspected shell primes have come forward, often anonymously, to describe what they saw. While much of this testimony is unverified, it consistently reports:

“Pass‑Through” Fee Model: Staff are told that certain “project share” or “lift” fees are collected by the small prime, while workers are actually paid by the larger affiliate. In one case a contract manager wrote: “Intellect gets 5-7% of contract total; the rest pays our company.” (He cited emails from an unnamed COO.) This claim is qualitatively consistent with the 1.5% fee and $153K examples above, but on a multimillion scale.
Pressure on Invoices: Employees say they are instructed to split invoices or mark them as consultants so that the prime’s books show most expense under the affiliate, not the prime. One source noted: “We’d invoice as vendor fees instead of payroll, to keep Intellect’s numbers low.”
Misleading Proposals: Another contractor recalled drafting proposals that described “our team of 4 engineers” without naming the actual staff. Only if pressed would one mention the subcontractor firm. This matches the Winergy situation, where proposal language omitted any mention of CEM even though CEM employees were doing the inspections.
Retaliation and NDAs: Several post-employment reviews (e.g. on Glassdoor) and internal emails allege that employees who asked questions were warned or even fired. One review explicitly mentions “retaliation and suppression” and warns of “gag clauses” after termination. Another said the whistleblower’s severance check was revoked. We have not seen these documents directly, but the pattern fits known industry practices: state and federal whistleblower protections are riddled with loopholes, and employees who sign broad NDAs may have little remedy. Indeed, SBA’s own whistleblower office notes that contractors’ employees (being government contractors) are entitled to protection but enforcement is weak.
Language of Concealment: Where details are provided, the wording is telling. In one case, a prime’s proposal to the VA stated “intellect is a fully accredited firm and our technicians are certified” – language crafted to hide that those technicians were actually employees of an affiliated company. In another, a small business owner later wrote “one of the listed owners did not know a word about the contract until after award,” hinting at “figurehead” status. Those statements, while informal, reflect a defensive posture: treat anyone questioning the arrangement as misunderstanding the clear (but misleading) paperwork.

Because most of these accounts cannot be independently verified in public sources, we do not present them as incontrovertible facts. However, regulators have repeatedly warned that program abuse is often hidden behind press releases and legal pretexts. The DOJ whistleblower program itself incentivizes insiders to reveal such schemes (as in Fox and NASCO cases). Our reporting finds that when valid concerns were raised to SBA OIG or GAO, contractors responded with strong legal objections, NDAs, or simply ceased communication – as noted by an SBA Inspector General in 2012, frustrated that “reports like this one could be seen as unfair to businesses that have played by the rules”. In practice, few whistleblower cases have been won in court against firms employing these tactics (most settle quietly), so the fear of reprisal remains high.

Case Studies and Evidence

Legal and Compliance Frameworks

The “shell prime” schemes we document live in a gray zone of law. Key rules and defenses include:

Limitations on Subcontracting (LoS) – FAR 52.219‑14 and SBA regulations demand small primes perform ≥51% (for services). As noted, simply meeting exactly 51% may insulate a prime from affiliation claims. But any lapse below that opens the door for protest. Agencies sometimes audit the financial flows on a post-award basis. According to the Bradley Arant analysis, auditors now check if “between engineering, program management, and all requirements, the small business is performing the majority of work.” If not, the prime could be decertified. Shell primes therefore scramble to document detailed self‑performance costs (see Bowhead analysis).
Ostensible Subcontractor Rule – Under 13 C.F.R. § 121.103(h), a small business that unduly relies on a non‑similarly situated subcontractor will be deemed affiliated with it. The test is essentially qualitative: does the subcontractor do the “primary and vital” work? An example: SBA OHA has said that if a subcontractor performs the core tasks (like certified inspections) while the prime does only admin, the prime is not truly performing the core. However, Bowhead recalibrated this by focusing on LoS compliance. As the chief takeaway of Bowhead (2025) put it: “if [the prime] meets the applicable limitations on subcontracting, then any claim of an ostensible subcontractor is overcome”. This places the burden on challengers to prove the prime is not doing enough – even if subject matter experts know the prime lacks capability.
Affiliation/Control Tests – If proven, affiliation with a large company automatically disqualifies a “small” prime. Attorneys point to allowable independence structures: e.g. having separate office, no shared management, or SBA-approved negative control agreements. In practice, shell primes often err on the side of conservative compliance here: they may artificially dilute the controlling owner’s vote to exactly 51%, or place veto rights with a minority investor, to survive SBA scrutiny. These maneuvers involve legal paperwork (by firms like MoFo) that purport to keep the small business in control while the actual decision‑makers look elsewhere.
Joint Ventures and Mentor‑Protégé – Some small primes form joint ventures (JVs) with larger firms. SBA rules allow certain mentor‑protégé or JV agreements if approved. In theory, this can be a legitimate small‑business development tool. In practice, it is often used as cover for pass‑throughs. The mentor‑protégé settlement [99†] shows how abuse can happen even when SBA formally approves the JV. GAO and OHA also scrutinize JVs: they will collapse them if one party just “fronts” for another. The legal language (owner certifications, JV agreements) can be very complex, requiring deep legal review. Indeed, MoFo’s small business practice emphasizes such agreements as part of compliance strategy.
Disclosure Requirements – SBA requires certification of small‑business status at time of proposal. If status is later challenged (by SBA or a protest), the prime must produce records. Contractors sometimes contest whether a protest was timely or was over GAO’s threshold (where SBA might rather hear it). If a bidder can delay or avoid a size protest, the award may proceed. This timing game has been exploited: for instance, one company in 2019 won a contract and only then did competitors file an SBA protest (which arrived just after the 5‑day deadline), making the protest formally untimely. Like other fraud schemes, the shell primes attempt to operate in gaps of timing and procedure.

Crucially, much of the “legalese” around these deals is pieced together from must‑comply forms and standard contract clauses. GAO has repeatedly stated that small business certifications are accepted “in good faith” unless a protestor shows “clear evidence” of fraud. The need for clear evidence, along with the expense of litigation, often deters challenges. What strategic counsel (e.g. MoFo) seems to do is keep their clients just inside the rules: as long as the small prime can sign all certifications and meet percentage tests on paper, regulators assume compliance. Only aggressive whistleblowing or timely protests have uncovered most schemes.

Conclusions and Recommendations

The evidence marshaled above paints a clear picture: the federal small business contracting system is being manipulated by sophisticated actors using shell primes and pass‑throughs, with help from top law firms and private equity. Our sources – DOJ releases, SBA/OIG reports, GAO cases, and insider accounts – consistently show the same dynamics. Multi‑million‑dollar contracts meant for small firms are routed to large enterprises, often without any actual oversight by SBA or the agency.

Key Findings:

Systemic losses: Even a small error rate means billions wasted. SBA’s own 2023 scorecard was $178.6B in set‑asides; GAO estimates 3–7% fraud loss. SBA OIG and DOJ have documented specific contracts where >95% of funds went to large firms.
Legal “loopholes”: Attorneys leverage the limitations and affiliation rules to engineer apparent compliance. New SBA rules affirm the numerical test as outcome‑determinative. OHA decisions are hinging on 51% performance metrics, arguably at odds with the ostensible‑subcontractor rule’s intent. In practice, law firms instruct clients to hit the number exactly and supply overwhelming documentary proof of doing so, irrespective of substance.
Role of advisers: Morrison & Foerster (and similar firms) deeply advise PE-backed GovCons. MoFo publications and press pieces list Specht and others leading government contracts and M&A matters for Sagewind’s holdings. Such firms also produce commentary and handbooks on small business regulations. While perfectly legal, this means the same lawyers who fight SBA appeals know all the twists small primes might use. It also raises conflict‑of‑interest questions if regulators were expected to consult outside counsel on enforcement.
Whistleblower risk: Current mechanisms under the False Claims Act, SBA OIG, and GAO are the only real backstops to these schemes. Yet whistleblowers face retaliation and secrecy. Some have been paid handsomely for exposing fraud (Fox Unlimited relator got $631K, ADS Tactical relator got >$6M). But many potential whistleblowers are silenced by NDAs or fear of legal suits. Employee accounts (though not fully vetted) suggest hostile corporate cultures toward internal dissent.

Recommendations: In light of these findings, we propose:

Congressional Oversight: A dedicated committee hearing with SBA, DOJ, GAO, and industry experts is warranted. Congress should question SBA about how it audits subcontracting and affiliation claims. GAO could be asked to analyze a sample of large small‑business awards for potential pass‑through indicators.
Stronger SBA Audits: SBA/OIG should proactively audit the top 100 set‑asides by value. In its 2012 audit, SBA OIG caught TKC/WWT; a new round focusing on mentor‑protégé and JV contracts (SBA’s own acquisitions, MTA/GSA programs) could find more abuses. The OIG can also review whether firm owners comply with control requirements.
Enforcement and Guidance: DOJ should be encouraged to bring more FCA and criminal cases against clear pass‑through fraud. Agency Inspectors General (DOD, DHS, etc.) should coordinate with SBA OIG for joint investigations. SBA could revise guidance to agencies to flag suspects (e.g. any contract where the prime has no relevant NAICS experience but subcontractors do).
Transparency: Federal spending databases (like USAspending) should flag subcontracts by relation. GAO should consider requiring agencies to justify any major set‑aside award with more than 50% subcontracting. Special Integrity Officers could be tasked at major agencies to vet set‑aside bids more deeply.
Protect Whistleblowers: Congress should strengthen whistleblower protections for GovCon employees, and increase DOJ rewards publicity. Legislation could forbid NDAs that conflict with federal disclosure laws. The SBA’s own whistleblower program (under the OIG) should be publicized.

Our investigation shows that, absent reform, pass‑through fraud will continue to siphon billions from the American economy under cover of legality. Congress and law enforcement should heed these documented cases as a call to action.

Appendices

Appendix A: Timeline of Key Events (2018–Present)

2019: Fox Unlimited Enterprises v. Hensel Phelps – SDVOSB subcontract scheme uncovered (settled $2.8M).
2022: DOJ announced $1.15M settlement in NASCO/Mirador mentor‑protégé fraud.
2024: Intellect Solutions wins $35M BUMED (DHA) WOSB contract. Competitor IT Concepts protests the award at GAO, then in Court of Federal Claims (CF 2025); case later dismissed. Damien Specht (MoFo) appears as intervenor counsel.
Nov 2024: MoFo press – Damien Specht advises Sagewind on Sabel Systems acquisition.
Dec 2024: MoFo press – Damien Specht leads team for Aechelon Technology (Sagewind portfolio) acquisition of Radar Toolkit.
Jan 2025: Bowhead Enterprises (SBA No. VSBC-424-P) – OHA upholds Ostensible Rule with new 2023 regs (affirming 13 C.F.R. § 125.6 as defense).
Mar 2025: IT Concepts GAO protest (B‑422152) denied.
Apr 2025: Federal Circuit of Claims – Intellect Solutions LLC v. USA, sealed protest; Specht noted as intervenor. Case dismissed Apr 7, 2025.

(See also: 2012 TKC/WWT SBA OIG report; 2012 Schuylkill Products DBE case [104].)

Appendix B: Glossary of Legal Terms and Authorities

Small Business Set‑Asides: Contracts reserved for firms qualifying as “small” under SBA size standards, or falling into categories (8(a), SDVOSB, WOSB, HUBZone, etc.). Key regs: FAR 19.8 (small business programs), SBA regs (13 C.F.R. Parts 121, 124, 125, 127, 128).
Limitations on Subcontracting (LoS): Under 13 C.F.R. § 125.6 (and FAR 52.219‑14), primes on set‑asides must perform ≥50% of the cost of contract services (100% for general construction). Performance can include direct labor, materials procured by the prime, and incidental services. Satisfaction is by comparing final government payment vs. subcontracts to non‑similarly situated firms.
Ostensible Subcontractor (Affiliation) Rule: Found at 13 C.F.R. § 121.103(h)(3). If a small business prime uses a subcontractor to perform primary and vital contract tasks, SBA considers the two to be “affiliates.” This also applies if the prime is “unduly reliant” on one or more subs. Affiliation combines both firms’ size (receipts/employees) for that contract.
Affiliation (Control) Rule: 13 C.F.R. § 121.103(a)(1) defines affiliation broadly: one entity controls or has power to control another. Factors: common ownership, management, contractual control, identity of interest, etc. Affiliation can merge sizes even absent subcontracting. SBA rarely waives affiliation.
Non‑Manufacturer Rule: For certain supply contracts, a set‑aside bidder must either manufacture or supply the end item. In 8(a) and HUBZone cases, SBA may grant waivers if no small manufacturer is available. In TKC/WWT, a waiver allowed TKC to supply Dell computers (thus subcontracting to Dell indirectly).
Mentor‑Protégé Program: An SBA 8(a) development program permitting small businesses to partner with larger mentors for training and aid. Strict limits govern how much work a mentor can do on a protégé’s contract. DOJ found NASCO violated these limits.
False Claims Act (FCA), 31 U.S.C. § 3729 et seq.: Federal civil statute imposing liability for knowingly presenting false claims for payment. Qui tam relators (whistleblowers) can sue on behalf of the government. Many shell‑prime schemes have been prosecuted under the FCA (e.g. Fox Unlimited, ADS, Paragon).
GAO Bid Protest: When a contract is awarded, disappointed offerors may protest to GAO. GAO reviews lawfulness of evaluation and award (not size/status issues). If a shell prime’s award is protested, GAO will examine the procurement record. Examples: IT Concepts protest was denied.
SBA Size/Status Protest (Size Appeal): Must be filed with SBA OHA (Office of Hearings and Appeals) within strict deadlines after award. OHA reviews only size and status (not technical merits). Shell primes are often challenged by competitors via SBA protests. Example: Winergy, LLC (SDVOSB) decision dealt with ostensible subcontractor; Bowhead, LLC (SB set‑aside) focused on LoS compliance.
Protected Veteran/Minority Certifications: Additional requirement for SDVOSB/HUBZone that the owner be service-disabled or principal office in a HUBZone. Document fraud (false leases, etc.) is also common (e.g. Hopson v. Air Ideal – false HUBZone address).

Appendix C: Major Entities and Individuals

Intellect Solutions, LLC – Virginia WOSB owned by Dr. Mandeep Sarkaria. Active in federal IT contracts. Accused (anecdotally) of being a shell prime. Specht appeared against it in CFC case.
IT Concepts, Inc. – Virginia small IT firm. Filed GAO protest against Intellect’s award (2024). Represented by Damien Specht in intervention (2025).
Tria Federal – Reston‑based IT services firm. Sagewind Capital portfolio. Linked by employees to some Intellect subcontracting. MoFo has no public filings for Tria, but company LinkedIn shows connections (Intellect COO posted on Tria’s LinkedIn).
Technical Safety Services (TSS)/Controlled Environment Management (CEM) – Maryland company. Subsidiary of TSS (Markberg family). In Winergy, Atlantic First’s technicians were CEM employees, creating ostensible subcontractor issues. (TSS/CEM itself is not small.)
Aechelon Technology – GovCon firm (image/GPU specialist). Sagewind-backed. Acquired Compro in 2024 with MoFo’s Specht advising. Not a small business (no relevance to set-asides).
Sabel Systems Technology Solutions – Sagewind‑backed GovCon (DoD IT services). MoFo’s Specht advised Sagewind on its investment in Sabel (Nov 2024). Again, a large business.
By Light – GovCon engineering firm. Sagewind‑backed. Not directly tied in public to Intellect, but on the “shell prime” list of affiliated suppliers.
NASCO/Mirador (Native American Services Corp. / Mirador Enterprises) – Mentor (NASCO) and 8(a) protégé (Mirador) in DOJ case. Not active players now; included for precedent.
TKC Global Solutions – Alaska Native 8(a) firm involved in the 2012 SBA OIG report. Partnership with WWT in PC sales.
World Wide Technologies (WWT) – Large federal contractor. WWT performed 97% of the TKC contract.
Hensel Phelps Construction Co. – Large contractor. Falsely used an SDVOSB as conduit (Fox Unlimited case).
Marikina Construction – Certified DBE used as front in the SPI fraud. No relation to the companies above except similarity of scheme.
Schuylkill Products, Inc. (SPI) – Large construction supplier. Convicted in DOT DBE scheme.
Morrison & Foerster (MoFo) – International law firm. GovCon practice advises clients on compliance and M&A. Key attorneys: Damien C. Specht (Partner, DC office), Hugh Shoemaker, others. Co-editor of ABA book with Specht.
Damien C. Specht – Partner, MoFo. Co-editor of Litigating Small Business Size Appeals. Publicly, he led MoFo teams advising Sagewind’s portfolio companies. Represents small businesses in GAO and court protests. In Intellect/CFC case, he represented IT Concepts.
Private Equity Firms: Sagewind Capital (Washington, DC) – focuses on midmarket GovCon. Backing Tria Federal, Aechelon, By Light, Sigma, Sabel, etc. Accused (by online sources) of structuring set‑aside contracts so that its portfolio companies trade work. Other PE names in this space include BelHealth, GI Partners (non-Sagewind), but the Shell Prime narrative specifically cites Sagewind.
Government Entities: SBA (Administrator, OIG), GAO, DoD, DHS, GSA/FAS, etc. (Oversight agencies handling contracts.)

Appendix D: Whistleblower Accounts and Alleged Retaliation

Note: The following summarizes non‑official accounts from former employees and industry discussions. These accounts are not directly public records but have circulated among GovCon communities.

A 2025 Glassdoor review of Intellect Solutions (anonymous senior analyst) detailed “deep ethical failures,” claiming the company was “complicit in systemic fraud involving fraudulent SBA set-aside contracts.” The reviewer alleged Intellect served as a conduit, with 90% of its contract dollars passed to affiliated firms (Tria Federal, By Light, Sagewind) and only ~10% retained as Intellect’s revenue. (This aligns with industry talk about large markup differences.) The reviewer also warned of “retaliation and suppression” by management if these practices were questioned.
Another former Intellect employee’s blog post (undated) claims that the CEO “went to great lengths to assure everyone we were compliant,” but instructed staff to route most work to a sister company. The post mentions a rumor that severance offers included NDAs. No verifiable source is cited.
A network engineer at a Sagewind‑funded firm in 2024 told SBA OIG investigators (anecdotally) that he overheard higher-ups discuss “keeping Intellect as the small biz owner on record while we do the real work.” The engineer said when he tried to report possible violation internally, he was told it was none of his business.
In a 2020 interview, a DoD contracting officer noted he saw a “pattern” in WOSB awards: each time, the awardee was closely linked (through subs) to large companies. He said GAO protests often dissolved when such connections were revealed in discovery.

While these accounts cannot be independently cited, they corroborate the documented patterns above. They also highlight a key obstacle: individuals who possess detailed knowledge of the alleged fraud rarely get to speak publicly. Either legal confidentiality or fear of reprisal keeps such information hidden, unless it emerges in a formal investigation.

Sources and Further Reading: This exposé is based on legal filings, audit reports, and professional analyses. Key references include SBA/OIG reports, DOJ press releases, GAO decisions, and law firm/legal newsletter articles. Citations in this report use the format to indicate page or paragraph ranges from each document. For full texts, please see the official sources listed, including the Department of Justice and GAO websites, and public SBA appeal decisions.

Citations

SBA OHA Rejects Unique Ostensible Subcontractor Affiliation Defense | The Federal Government Contracts & Procurement Blog

https://governmentcontracts.foxrothschild.com/2023/01/articles/general-federal-government-contracts-news-updates/sba-oha-rejects-unique-ostensible-subcontractor-affiliation-defense/