Georgia Tech Procurement Assistance Center

Four issues that defined the False Claims Act in 2019

By

As I wrote two weeks ago, the Department of Justice (DOJ) recently released its annual fiscal year statistics on False Claims Act (FCA) and fraud matters.  The report shows Fiscal Year 2019 was another big year for the FCA, as the number of new matters initiated and the amount of monetary recoveries obtained both increased over the previous year.  2019 also brought important FCA decisions from federal courts, including the Supreme Court; potential new avenues for FCA liability; and formal announcements from DOJ.  These reveal emerging trends that may have lasting implications for government contractors.

Continue reading at:  Piliero Mazza

 

Government contractors found guilty in $11 million veteran set-aside fraud scheme

By

A federal jury has convicted Andrew Otero and his company, A&D General Contracting, Inc. (A&D), on charges that they fraudulently obtained $11 million in federal contracts specifically set aside for service-disabled veteran-owned businesses.  The jury’s decision was rendered on Nov. 21, 2018.

The evidence demonstrated that Otero had no military experience.  Yet Otero and veteran Roger Ramsey participated in a conspiracy to defraud the government by forming a joint venture (JV) – and falsely representing that Ramsey’s firm and the JV qualified as service-disabled veteran-owned small businesses (SDVOSB).  Based on the false claim to SDVOSB eligibility, the conspirators fraudulently obtained approximately $11 million in federal government construction contracts or task orders with the Department of Veterans Affairs (VA) and the Army Corps of Engineers (ACE).

As proven at trial, the fraudulent conspiracy involved set-aside contracts that could only be bid upon by legitimate service-disabled veteran-owned small businesses – a designation that did not apply to Otero or A&D.  To appear qualified, Otero and Ramsey initially executed an agreement to create the JV, which stated that Ramsey’s company would be the managing venturer, employ a project manager for each of the set-aside contracts, and receive the majority of the JV’s profits.

However, as proved at trial, six months later, Otero and Ramsey signed a secret side agreement that made clear the JV was ineligible under the SDVOSB program. For example, the side agreement said the parties created the JV so that A&D could simply use the disabled veteran status of Ramsey’s firm to bid on contracts.  The side agreement also stated that A&D – not Ramsey – would run the construction jobs.  They also agreed that A&D would keep 98 percent of every payment.

In addition to the secret side agreement, the evidence demonstrated several ways in which the JV did not operate as a legitimate SDVOSB, but was essentially controlled by Otero and A&D.  For example, although Ramsey (a service-disabled veteran) nominally served as president of his firm and the JV, he actually worked full-time for a telecommunications company.  Otero and A&D, not Ramsey, controlled the day-to-day management, daily operation and long-term decision making of the JV. Among other things, Otero and A&D appointed an A&D employee as the project manager for every contract and task order.

“Our nation strives to repay the debt of gratitude we owe to our veterans by setting aside some government contracts for veterans with service-related disabilities,” said United States Attorney Adam Braverman.  “These unscrupulous contractors abused this program through a cynical and illegal ‘rent-a-vet’ scheme.  They are now being held fully accountable for robbing truly deserving vets of important economic opportunities.”

The defendants are also facing civil charges consisting of alleged violations of the false claims act based on the similar misconduct.  The defendants have been ordered to appear in U.S. District Court for sentencing on February 19, 2019.

Source: https://www.justice.gov/usao-sdca/pr/government-contractors-found-guilty-11-million-veteran-set-aside-fraud-scheme

Division of N.C. company pays $3.5 million to settle False Claims Act allegations

By

Indal Technologies, Inc. has agreed to pay $3.5 million to resolve allegations that it knowingly sold defective helicopter landing systems designed for U.S. Navy destroyers.  Indal, of Ontario, Canada, is a division within Curtiss-Wright Corporation of Charlotte, North Carolina.

Since the 1970s, Indal has produced the Recovery, Assist, Secure, and Traverse (RAST) system attached to U.S. Navy’s Arleigh-Burke class destroyers.  RAST systems allow helicopters to land on destroyers.

The RAST system includes a device that locks a hovering helicopter onto a trolley.  Once locked in place, the helicopter moves along a series of steel track plates into a shipboard hangar.  The trolley must remain securely connected to the track plates, because the helicopter may be required to land during rough seas and high winds.  The Navy’s contracts for RAST systems expressly required track plates made of HY100 steel due to the material’s increased strength, combat ruggedness, and protection from corrosion.

The settlement announced last week resolves allegations that Indal, without informing the Navy, knowingly substituted a different, less expensive type of steel in numerous RAST system track plates delivered to the Navy.

This settlement was the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the District of New Jersey.  The investigation was conducted by the Naval Criminal Investigative Service and the Defense Contract Audit Agency.

The claims resolved by the settlement are allegations only; there has been no determination of liability.

Source: https://www.justice.gov/opa/pr/indal-technologies-agrees-pay-35-million-settle-false-claims-act-allegations

Fort Stewart contractor that posed as small business forfeits $7.8 million

By

A company that rents tents and other outdoor structures for events agreed to pay the government $7.8 million to settle charges that it wrongly won Defense Department set-aside contracts reserved for small businesses.

Arena Americas, which does business from multiple locations as Arena Event Services, settled after a False Claims Act investigation conducted by the Army Criminal Investigation Command, the Defense Criminal Investigative Service and the inspector general of the Small Business Administration.

The agreement details how Arena Americas worked with Military Training Solutions LLC to obtain small business defense contracts that were represented as being performed by Military Training Solutions, but were actually performed by Arena Americas.

“As a result of this scheme, which was perpetuated at Fort Stewart, Ga., and at other military installations across the United States, millions of dollars in defense contracts wrongfully were awarded to Arena Americas instead of legitimate small businesses,” said Bobby Christine, U.S. Attorney for the Southern District of Georgia, in a statement. “The U.S. Attorney’s Office will not tolerate any attempts to illegally exploit the system for a company’s personal advantage” in obtaining the set-asides that Congress intended as a tool to help grow small businesses.

Keep reading this article at: https://m.govexec.com/contracting/2018/10/defense-contractor-who-posed-small-business-forfeits-78-million/151951

See statement by U.S. Attorney’s Office for the Southern District of Georgia at: https://www.justice.gov/usao-sdga/pr/defense-contractor-agrees-pay-united-states-78-million-settle-false-claims-act

False Claims Act decisions provide insights into Buy American Act and Trade Agreements Act compliance

By

Due to the government’s increased focus on domestic preference requirements – for example, through President Trump’s formal policy and action plan for agencies to “scrupulously monitor, enforce, and comply” with the so-called “Buy American Laws,” and Congress’s proposed legislation to make certain Buy American requirements more robust – contractors should not be surprised if there is a corresponding increase in related False Claims Act (FCA) activity.

Notwithstanding, based on a review of recent FCA decisions, whe courts generally have been skeptical of attempts by relators to allege FCA liability regarding a purported Buy American Act (BAA) or Trade Agreements Act (TAA) violation.

These decisions and several key takeaways that will help contractors avoid (and defeat) such FCA lawsuits are discussed in an article that can be downloaded here: https://www.cov.com/-/media/files/corporate/publications/2018/06/seven_takeaways_from_recent_fca_decisions_on_domestic_preference_requirements.pdf?_ga=2.118195274.232753034.1530642563-1639006631.1522784552

U.S. Attorney for Southern District of GA announces results of recent procurement fraud prosecutions

By

As part of a new emphasis on procurement fraud enforcement within the Southern District of Georgia, the U.S. Attorney’s Office for the Southern District of Georgia has announced the results of a series of recent procurement fraud prosecutions.

Over the past several months, the strike force’s efforts resulted in five guilty pleas and twelve civil settlements, including the following publically available actions:

  1. United States of America v. Dwayne Fulton (1:17-CR-35)
  2. United States of America v. Calvin Lawyer (1:17-CR-35)
  3. United States of America v. Anthony Roper (1:17-CR-35)
  4. United States of America v. Audra Roper (1:17-CR-35)
  5. United States ex rel. Major Contracting Services, Inc. v. Military Training Solutions, LLC and ADCO Holdings, Inc., et al. (4:16-cv-115)
  6. United States of America v. Robert Obradovich (4:18-CR-47)

These prosecutions and civil settlements with the named individuals and entities, as well as others, stemmed from a wide variety of fraudulent conduct, including bribery of public officials, illegal kickbacks, illegal arrangements between large contracting companies and certified small or 8(a) businesses acting as “front” companies, and billing for services not rendered.  Each of the individuals who has pled guilty awaits sentencing.  The total financial recovery for the United States thus far has exceeded $7.4 million.  Several of these investigations remain ongoing.

“The Southern District of Georgia is the proud home of several major military installations that serve a vital role both in our national defense and the district’s local economy,” said United States Attorney Bobby L. Christine.  “Those who do business with these installations should be on notice – ripping off the United States will not be tolerated! This office will bring to bear the full weight of our resources to hold fraudsters accountable.”

The joint strike force that led to these convictions and settlements involved agents, investigators, and auditors from the Department of Justice, Defense Criminal Investigative Service, Army Criminal Investigation Command (Major Procurement Fraud Unit), Naval Criminal Investigative Service, the Small Business Administration Office of Inspector General.  Significant and critical assistance was also provided by civilian and military personnel from the Army, Navy, and Air Force stationed at affected military installations.

“The American public expects the Department of Defense (DoD) to spend limited taxpayer funds efficiently and economically.  Bribery and other corrupt behavior by public officials and defense contractors diverts and wastes precious dollars intended to provide critical products and services for our Warfighters.  These results demonstrate the effectiveness of investigative efforts by the Defense Criminal Investigative Service to protect the integrity of all DoD programs,” said Special Agent in Charge John F. Khin, Southeast Field Office.

“These settlements stand as proof of the tenacity of our special agents,” said Frank Robey, director of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit. “It is important for those who conspired to profit from illegal payments take responsibility for their actions. The settlements hold the defendants accountable and send a message to others that these violations will be taken seriously.”

“Our partnership with the joint procurement fraud strike force ensures fair and open competition for U.S. Government contracts which support the training and readiness of Marine Corps personnel,” said H. Andrew Goodridge, Special Agent in Charge, NCIS Carolinas Field Office.

“SBA OIG will aggressively investigate allegations of fraud involving SBA’s preferential contracting programs, to include false statements made to gain access to contracting opportunities set aside for small businesses,” said SBA OIG Eastern Region Special Agent-in-Charge Kevin Kupperbusch.  “SBA’s preferential contracting programs are intended to promote the economy and grow and develop small businesses across the nation.  I want to thank the U.S Attorney’s Office and our law enforcement partners for their dedication and hard work throughout these investigations.”

SBA’s General Counsel, Christopher Pilkerton said, “These successful prosecutions demonstrate the tremendous results achieved through the combined efforts of federal agencies to uncover and forcefully respond to procurement fraud.  SBA is strongly committed to identifying and aggressively pursuing instances of fraud perpetrated by those participating in SBA’s procurement programs.”

The United States was represented by Assistant United States Attorneys Brian T. Rafferty, Shannon H. Statkus, J. Thomas Clarkson, Matthew A. Josephson, and Jonathan A. Porter.  Any claims resolved by the civil settlement agreements are allegations only and there has been no determination of liability.

Each of the civil settlements resolved potential liability under the False Claims Act.  Under the False Claims Act, whistleblowers can be entitled to a portion of the amount recovered by the United States.  The United States Attorney’s Office also reminds contractors that businesses and individuals that self-disclose potential violations can be eligible for significantly reduced penalties.

If you have any information regarding potential procurement fraud, please contact Assistant United States Attorney J. Thomas Clarkson at (912) 201-2601.

Source: https://www.justice.gov/usao-sdga/pr/southern-district-georgia-announces-results-recent-criminal-and-civil-procurement-fraud

Defense contractor to pay $16 million to settle false claims allegations over small business contracts

By

Virginia-based contractor ADS Inc. and its subsidiaries have agreed to pay $16 million to settle allegations that they violated the False Claims Act by knowingly conspiring with and causing purported small businesses to submit false claims for payment in connection with fraudulently obtained small business contracts, the Department of Justice announced last week.

The settlement also resolves allegations that ADS engaged in improper bid rigging relating to certain of the fraudulently obtained contracts. The settlement with ADS ranks as one of the largest recoveries involving alleged fraud in connection with small business contracting eligibility.

In order to qualify as a small business, companies must meet defined eligibility criteria, including requirements concerning size, ownership, and operational control.  The settlement with ADS resolves allegations that ADS, together with several purported small businesses that it controlled, fraudulently induced the government to award certain small business set-aside contracts by misrepresenting eligibility requirements. The purported small businesses affiliated with ADS include Mythics Inc., London Bridge Trading Co. Ltd., as well as MJL Enterprises LLC, which falsely claimed to be an eligible service-disabled veteran-owned company, and SEK Solutions LLC and Karda Systems LLC, both of which falsely claimed to qualify as socially or economically disadvantaged businesses under the Small Business Administration’s 8(a) Business Development Program. ADS and its affiliates allegedly concealed the companies’ affiliations with ADS and knowingly made misrepresentations concerning the size of the businesses and their eligibility as service-disabled or 8(a) qualified businesses. Finally, the settlement resolves allegations that ADS engaged in illegal bid rigging schemes that inflated or distorted prices charged to the government under certain contracts.

The settlement with ADS resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The civil lawsuit was filed in federal district court in the District of Columbia by Ameliorate Partners LLP. As part of today’s resolution, the whistleblower will receive approximately $2.9 million.

The settlement is the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorneys’ Offices for the District of Columbia and the Eastern District of Virginia, the Small Business Administration’s Office of Inspector General, and the General Services Administration’s Office of Inspector General.  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Source: https://www.justice.gov/opa/pr/defense-contractor-ads-inc-agrees-pay-16-million-settle-false-claims-act-allegations

“Reverse” False Claims Act liability extended to bonding companies

By

On Monday, the U.S. District Court for the District of Columbia ruled that bonding companies can be held liable for treble damages under the False Claims Act for issuing surety bonds to construction companies that falsely claim to be a Service-Disabled Veteran-Owned Small Business (SDVOSB).

In a novel reverse False Claims Act case, whistleblower Andrew Scollick alleged that the bonding companies “knew or should have known” the construction companies were shell companies acting as a front for larger non-veteran owned entities violating the government’s contracting requirements.

A reverse false claim action can occur when defendants knowingly make a false statement in order to avoid having to pay the government when payment is otherwise due in violation of 31 U.S.C. § 3729(a)(1)(G) (reverse false claims).  See United States ex. rel. Scollick v. Narula, Case No: 14-cv-01339-RCL (District Court, District of Columbia. July 31, 2017).

Under the Miller Act, government construction contractors must post bid bonds, performance bonds, and payment bonds that guarantee that the contractor will perform the work according to the terms of the contract. In this case, the contract terms required that the construction be performed by a SDVOSB entity.  Michael Kohn, of Kohn, Kohn & Colapinto, who represents the whistleblower, argued that given their role in providing a surety bond to the contractor the bonding companies would know whether the invoicing being billed against the contract is being performed by a SDVOSB.  The district court agreed and found that a “reverse false claims” violation occurred because the bonding company knew or should have known that the construction organization was not a SDVOSB and the act of issuing surety bonds furthered the fraud.  As a result, the bonding companies were held legally obligated to return to the government funds the bonding company knew to be paid to contractor firms fraudulently posing as SDVOSBs. Being held liable under the False Claims Act means that treble damages will be awarded for every dollar up to the amount of the bond that the government paid out under each contract.

Because of the substantial dollar amounts involved, it is not all that uncommon for contractors to falsify service-disabled veteran status. Holding bonding companies liable when they have reason to know of the fraud could have an immense impact on stamping out such contract fraud. “Holding bonding companies liable for treble damages in these types of case will have a huge impact on preventing fraud in government contracts and will help ensure these contracts go to disabled veteran-owned companies as intended,” said Kohn.

The Scollick case alleges that two of the largest surety bonding companies, Hanover Insurance Company and Hudson Insurance Company, knowingly bonded dozens of Veteran Administration construction contracts totaling more than $12.5 million with the knowledge that the bonded contractors did not qualify as service-disabled, veteran-owned small businesses.

 

Source: http://www.webwire.com/ViewPressRel.asp?aId=211708

Supreme Court hears argument over False Claims Act’s seal requirement

By

Supreme CourtWeek before last, the United States Supreme Court heard argument in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby over the False Claim Act’s (FCA) “seal requirement.”  The controversy highlights an important statutory tool for government contractors who face allegations of making false claims for payment.  It also provides important lessons for those seeking to bring such allegations.

Under the FCA, a qui tam complaint must be filed under seal and remain under that seal for sixty days.  31 U.S.C. § 3730(b)(2).  During those sixty days, the Government can intervene in the case or request an extension of time.  Meanwhile, the plaintiff may not disclose the existence of the suit to the public.

Keep reading this article at: https://www.insidegovernmentcontracts.com/2016/11/supreme-court-hears-argument-false-claims-acts-seal-requirement/

 

 

Contracting News

Read More

Contracting Tips

Read More

GTPAC News

Read More

Georgia Tech News

Read More