Georgia Tech Procurement Assistance Center

Two companies and individuals indicted for exploiting disadvantaged business program

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Stamatios “Tom” Kousisis of Pennsylvania and Emanouel “Manny” Frangos of Ohio, along with Alpha Painting & Construction Co., Inc. of Baltimore, Maryland, and Liberty Maintenance, Inc. of Youngstown, Ohio were charged last week with conspiracy to commit wire fraud, wire fraud, and making false statements in a scheme involving the U.S. Dept. of Transportation’s Disadvantaged Business Program (DBE) in connection with Pennsylvania’s federally-funded Girard Point Bridge project and the federally-funded 30th Street Station.

Kousisis is the Project Manager of Alpha and Frangos is an owner of Liberty Maintenance, which are both bridge painting contractors, although neither is a certified DBE in Pennsylvania.  The alleged scheme involved Alpha-Liberty JV, a joint venture between defendants Liberty Maintenance and Alpha Painting, and Markias, Inc., a now-defunct certified DBE.

In September 2009, PENNDOT awarded a contract for approximately $70.3M to a triventure that included the Alpha-Liberty JV to perform structural steel painting and repairs, and concrete repairs, on the Girard Point Bridge in Philadelphia.  As part of that award, the triventure made a commitment to PENNDOT to subcontract approximately $4.7M in DBE work to Markias to supply materials to be used in performing the contract.  Under governing law, the Alpha-Liberty joint venture was only entitled to credit for work performed by a DBE that was performing a commercially useful function.  Instead, according to the indictment, the Alpha-Liberty JV and Kousisis ordered materials needed for their work on the Girard Point Project directly from suppliers that were not DBEs, and used Markias as a mere pass-through or front, to make it falsely appear that disadvantaged business enterprise requirements had been met on the Girard Point Project when those requirements had in fact not been met.  Markias did not perform a commercially useful function.

In December 2010, PENNDOT awarded a contract for approximately $50.8 million to a joint venture of two companies referred to in the indictment as Company C and Company F, to perform structural steel painting and repairs and roadway reconstruction beneath and around AMTRAK’s 30th Street Train Station in Philadelphia.  Company C and Company F entered into a subcontract, for approximately $15 million, for the Alpha-Liberty JV to perform the structural steel painting beneath 30th Street Station.  As part of the bid process, Company C and Company F committed to subcontract approximately $1.7M in Disadvantaged Business work to Markias to supply paint materials for the 30th Street Project.  Instead, according to the indictment, the Alpha-Liberty JV and Kousisis ordered materials needed for their work on the 30th Station Project directly from suppliers that were not DBEs, and used Markias as a mere pass-through or front, to make it falsely appear that the DBE requirements had been met on the 30th Station Project when those requirements had in fact not been met.  Markias did not perform a commercially useful function.

In addition, the indictment alleges that the Alpha-Liberty JV and Kousisis, and Frangos ordered materials to be delivered to and used on out-of-state projects while directing that the purchase invoices be sent to Markias in New Jersey.  Then, allegedly at the direction of Alpha-Liberty JV and Kousisis, and Frangos, Markias issued invoices that made it falsely appear that those supplies had been used on the Girard Point and 30th Street Projects in Pennsylvania.  Alpha-Liberty JV and Kousisis, and Frangos allegedly caused Company C to falsely report to PENNDOT that the supplies delivered to and used on the out-of-state projects qualified for DBE credit in Pennsylvania when those purchases did not so qualify.  PENNDOT awarded approximately $3.26 million in DBE credit to for the Girard Point Project and approximately $1.275 million in DBE credit for the 30th Street Station Project based on DBE work supposedly performed by a disadvantaged business (Markias). Alpha-Liberty JV paid Markias 2.25% of the face value of the invoices processed by Markias allegedly to act as a pass-through.

If convicted the defendants face a statutory maximum sentence of 170 years in prison, a possible fine, supervised release, and a $1,600 special assessment.

The case was investigated by the U.S. Department of Transportation Office of Inspector General, the FBI, the Department of Labor Office of Inspector General, and Amtrak Office of Inspector General.

An indictment is an accusation. A defendant is presumed innocent unless and until proven guilty.

Source: https://www.justice.gov/usao-edpa/pr/charges-allege-two-individuals-and-their-companies-exploited-usdot-disadvantaged

Contractor to pay over $8 million for scheme to fraudulently claim credit for work performed by DBE

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Granite Construction, Incorporated (Granite), a nationwide construction and public works company that is publicly traded on the New York Stock Exchange, has entered into a non-prosecution agreement and agreed to pay more than $8 million to the federal government and the Metropolitan Transportation Authority Office of Inspector General (MTA-IG) to resolve a criminal investigation into a disadvantaged business enterprise (DBE) fraud scheme perpetrated by Granite’s wholly-owned subsidiary, Granite Construction Northeast, Incorporated (GCN), previously known as Granite Halmar Construction Company, Incorporated.  In addition, Granite will provide continuing cooperation to the government and maintain far-reaching corporate reforms.

Justice Dept. sealPursuant to the non-prosecution agreement signed on November 24, 2015, Granite acknowledged and accepted responsibility for a DBE fraud scheme related to GCN’s work on a contract for the MTA that involved the construction of a bus depot in Maspeth, Queens, NY (the Project).  The Project was largely federally funded.

The investigation revealed that GCN served as the prime contractor on the Project after being awarded the prime contract for the job by the MTA, a contract for which GCN was ultimately paid approximately $222 million.  The contract required GCN to comply with the Disadvantaged Business Enterprise Program (the DBE program).  Pursuant to that program, as the prime contractor, GCN was obligated to make good faith efforts to subcontract a specified percentage of work on the prime contract to certain disadvantaged business enterprises (DBE companies).

GCN, certain other non-DBE companies (the actual companies), and a DBE company that acted solely as a front company in connection with the Project (the front company)  conspired to arrange the following scheme to avoid compliance with the DBE program:

(a) the front company would be awarded a subcontract worth approximately $22 million, to perform certain construction work (the specified work) on the Project;

(b) the actual companies would perform the specified work, but payroll would be “run through” the front fompany, with paperwork arranged to make it appear as if the front company was performing the specified work; and

(c) GCN would pay the front company a $500,000 “DBE fee,” although the front company would not perform a “commercially useful function” on the specified work, as required by state and federal regulations.

As the front companies performed the specified work, GCN submitted to officials from the MTA, as required, periodic progress reports that purported to represent the percentage of work performed by DBE companies on the prime contract.  From 2004 through approximately 2008, GCN falsely represented in those reports that the front company had performed a “commercially useful function” in performing thespecified work, when in fact, the specified work had actually been performed by the actual companies, and the front company had not performed any such commercially useful function.  (In August 2013, one of the actual companies, A.J. McNulty & Company, also entered into a non-prosecution agreement with the United States Attorney’s Office for the Eastern District of New York to resolve a criminal investigation into the same scheme.  Under the terms of that agreement, A.J. McNulty agreed to forfeit $850,000 to the federal government and pay $100,000 to the MTA-IG.) As a result, GCN deprived the MTA of its rights under the prime contract and deprived legitimate DBE companies of the opportunity to perform the specified work and be paid for it.

In light of a comprehensive internal investigation conducted by Granite, Granite’s complete acceptance of responsibility for GCN’s unlawful conduct, Granite’s cooperation with the government, the fact that the GCN employees most responsible for GCN’s unlawful conduct were separated from GCN and Granite years before the government’s investigation began, and Granite’s far-reaching remedial measures, including site visits by compliance program staff and mandatory training for appropriate Granite managers and employees, the government has agreed not to prosecute Granite or GCN for GCN’s criminal conduct provided that Granite complies for two years with all the terms of the agreement executed today. Significantly, this agreement also secures civil forfeiture to the federal government of $7.25 million in connection with this fraud, as well as a payment of $1 million to the MTA-IG.

“GCN defrauded the MTA by falsely claiming that millions of dollars worth of construction work was performed by a DBE company.  Today’s resolution marks a significant step in our continued effort to eliminate DBE fraud in New York’s construction industry and also recognizes Granite’s decision to timely accept full responsibility, provide complete cooperation, and take remedial measures to enforce best industry practices,” stated U.S. Attorney Capers.  Mr. Capers thanked the investigative agencies for their outstanding commitment and dedication over the course of this investigation.

“As evidenced by the non-prosecution agreement entered into by Granite Construction, Inc., we remain steadfast in our commitment to maintaining the integrity of the U.S. Department of Transportation’s (USDOT) Disadvantaged Business Enterprise program,” said Regional Special Agent-in-Charge Shoemaker, USDOT Office of Inspector General.   “Working with the Secretary of Transportation and other DOT leaders, and our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse, and violations of law.”

“This investigation uncovered a scheme that exploited a program designed to encourage disadvantaged businesses to participate in Metropolitan Transportation Authority projects,” stated IRS-Criminal Investigation Special Agent-in-Charge Kitchen.  “IRS-Criminal Investigation is proud to be part of the collective law enforcement effort on this investigation; it demonstrates the government’s resolve to protect public funds and its commitment to ensure the public’s trust.  The fact that GCN has entered into an agreement with the government will further serve and protect the public’s best interest.”

“Today’s announcement clearly reflects the firm commitment by our Office and our investigative and prosecutorial partners to utilize all avenues to ensure compliance with DBE requirements and to create and maintain a level playing field on which all qualified DBEs have a fair and equal opportunity to bid for and participate in all MTA projects.  We will continue to direct our energies and share of settlement proceeds to support the MTA Small Business Development Program and other productive efforts to expand opportunities for disadvantaged business enterprises,” stated Inspector General Kluger.

“Reporting that work was performed by a DBE company involved manipulating American workers and processing their pay through a front company in order to conceal the fraud.  We will continue to work with our law enforcement partners to protect contract opportunities for legitimate disadvantaged businesses,” stated Special Agent-in-Charge Garcia of the New York Regional Office, U.S. Department of Labor – Office of Inspector General, Office of Labor Racketeering and Fraud Investigations.

Source: http://www.justice.gov/usao-edny/pr/granite-construction-pay-more-8-million-forfeiture-and-penalties-engaging-scheme

DBE bid protests: One contractor’s loss is another’s gain

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Lately, competition for public works projects is fierce, and bidders, using every possible advantage to obtain contracting opportunities, seem resigned to combing through a low bid to determine if “all I’s are dotted and T’s are crossed.”

As part of this process, the Disadvantaged Business Enterprise (“DBE”) compliance requirements have turned out to be a fertile ground for bid protests, particularly on federally funded state highway projects.  The DBE program provides a vehicle for woman and minority-owned, small businesses to participate in public projects.  As part of this program, contractors on federal public contracts are required to meet certain DBE subcontracting goals (for example, 12% of the total bid amount must be subcontracted to certified woman or minority-owned firms).

The requirements for demonstrating DBE participation, however, can be complicated and fraught with pitfalls for both DBEs and contractors alike.  Failure to comply with the DBE bidding requirements to the letter is a common basis for finding a bid non-responsive, and, thus, provides numerous bidders with a basis to protest, including (i) questioning a prime contractor’s achievement of the project’s DBE goal or good faith efforts to meet that goal, (ii) the legitimacy or certification of a listed DBE entity, or (iii) a DBE’s ability to perform a Commercially Useful Function on a project.

For example, a general contractor who submitted a bid which came in “second,” may challenge award of the project to the apparent low bidder on the basis that the DBE firm that the low bidder proposes to use is either not properly certified to perform the work proposed or is not a legitimate DBE firm.  Such protests provide a lucrative opportunity for the second low bidder who may ultimately be awarded the project.

Keep reading this article at: http://www.ac-lawyers.com/news/2013/05/14/dbe-bid-protests-one-contractors-loss-is-anothers-gain

More oversight needed to ensure intended contracts go to disadvantaged firms

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The government has been aggressive in pressing recipients of federal funds to step up their oversight of Disadvantaged Business Enterprise (DBE) programs. DBEs, broadly speaking, are small businesses that are majority-owned by women, minorities or certain military veterans. Many federal contracts require participation by DBEs.

Federal regulations also oblige grant recipients to monitor contractors’ compliance with DBE requirements, including that a DBE to whom work is contractually committed is performing a “commercially useful function” — that is, doing the contracted work with its own personnel and resources.

But mounting examples of wrongdoing in DBE programs have called into question the effectiveness of recipients’ oversight.

Keep reading this article at: http://www.federaltimes.com/article/20121014/ADOP06/310140003/More-oversight-needed-ensure-intended-contracts-go-disadvantaged-firms?odyssey=tab%7Ctopnews%7Ctext%7CAdvice%20&%20Opinion.

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