Smaller ARM Firms May have a Crack at Government Rescue Work

Editor’s Note: In a comment posted on last week’s article on the financial institution rescue plan ("U.S. to Use Funds to Create Massive Debt Buying Market for Bad Loans," Feb, 11), a reader asked how smaller companies might participate in the effort.

Barry Fromm, CEO of Value Recovery Holdings and a founding member of USA Recovery Group LLC — a coalition of accounts receivable management (ARM) firms, including many that had worked with the Resolution Trust Corporation in the 1980s and 1990s — told insideARM that any firms interested in participating should closely follow the enabling legislation. There might be specific allowances for small businesses in the authorization language.

Under the Resolution Trust Corporation, which was established to handle a similar crisis with savings and loans banks in the late 1980s, there was a set-aside for minority and women-owned firms, up to 25 percent of contracts awarded. But even without specific set-asides, there still may be work for small ARM businesses.

Primary government contractors tend to subcontract out a lot of work. This is quite common among federal government vendors, including those on the Department of Education student loan debt collection contracts to handle more specialized work (“Size of ED Portfolio Drawing Interest in Collector Conference,” Jan. 14, 2008).

“This will involve a lot of intensive professional asset work,” Fromm said. “They will be looking for a whole host of skill sets.” Even though Fromm’s own firm did a significant amount of work with the RTC, it is still classified as a small business, he said.

Professional asset firms, collection firms, lawyers, appraisers, real estate brokers, property managers, and related businesses will all be involved, according to Fromm. Fromm cautioned that working on these assets will be more difficult than typical asset management work because there will be complex deficiencies, judgments and charge-offs to deal with.

The FDIC will be heading the current financial rescue effort. Though the parameters for contractors have yet to be determined, Fromm said the FDIC will be looking for firms that are well capitalized, have experience working with particular types of assets and are already on government contracting lists, though the FDIC does not necessarily have to abide by the lists.

These firms in turn will look for subcontractors that are experienced in different areas, have outstanding credentials and training and have solid financial footings. If Sarbanes-Oxley is any indication, many of the requirements of the direct contractors will likely be needed by the subcontractors (many small firms don’t fall under SOX, but they are expected to follow many of the same transparency rules as the larger firms covered by the law).

Anyone getting involved in the programs will be expected to make in-depth formal presentations, be fully vetted, and be able to show relevant experience in this type of work. For example, collection firms without any relevant asset management experience shouldn’t be expected to be on the front lines, though there might be subcontracting opportunities for specific collection work where a firm does have experience, Fromm said.