Georgia Tech Procurement Assistance Center

Are more FCA cases against small businesses on the horizon?

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On August 20, 2019, the U.S. Department of Justice announced that it had reached a $20 million settlement with Luke Hillier (Hillier), the majority owner and former CEO of a Virginia-based defense contractor, ADS, Inc. (ADS), to resolve “allegations that he violated the False Claims Act (FCA) by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive . . . .”  The resolution of the claims against Hillier follows ADS’s payment of a separate $16 million settlement on related claims, as well as an additional $225,000 paid by Charles Salle, the former general counsel of ADS, to resolve claims arising from his role in the alleged scheme.  Combined, the $36 million total settlement is believed to be the largest FCA recovery in history based on allegations of small business contracting fraud.  Given the size of the collective settlement and the nature of the allegations against Hillier and ADS, small businesses everywhere—particularly government contractors—should anticipate a potential increase in the frequency of small business fraud-related FCA cases.

The case from which these settlements arose was originally filed in November 2013 and alleged that ADS caused its affiliates to falsely represent themselves as, among other things, Service-Disabled Veteran-Owned Small Businesses (SDVOSBs).  It further alleged that these false representations allowed ADS, through its affiliates, to compete improperly for set-aside opportunities that were intended to be available only to SDVOSBs and for which ADS was not eligible.  As a result of this improper access, ADS profited at the expense of both the government and eligible SDVOSBs.  The claims against ADS were settled in August 2017; however, the claims against Hillier remained outstanding until last month.

Continue reading at: Piliero Mazza

DOJ cracks down on set-aside contracting fraud

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This week, the Department of Justice (“DOJ”) issued two press releases regarding companies and individuals that agreed to settle False Claims Act cases related to government contracting fraud.  United States Attorney Maria Chapa Lopez announced that Sunrise Systems of Brevard, Inc. had agreed to pay the United States $500,000 to resolve allegations that it violated the False Claims Act by submitting claims for government funds in violations of Small Business Administration regulations.  According to the settlement agreement, from December 10, 2013, through February 9, 2016, Sunrise partnered with a minority-owned small business, V&R Enterprises of Jacksonville, Inc., but violated the SBA’s labor and work performance requirements in order to access SBA set-aside funds.  The government alleged that Sunrise performed nearly all of the work on the joint venture project and received nearly all of the profits, in violation of the law.  In another case, Luke Hillier, the majority owner and former Chief Executive Officer of Virginia-based defense contractor ADS, Inc., agreed to pay the United States $20 million to settle allegations that he violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive.

Both cases illustrate that it is critically important that companies both large and small know and understand the rules and regulations governing small business set-aside procurements.  This is especially important when it comes to performance of work requirements (limitations on subcontracting), which often require the small business on a set-aside procurement to do a requisite amount of work depending on the type of contract at issue.  On a set-aside contract that is restricted for a certain types of small business, it is often illegal for the small business to subcontract out all of the work to a large subcontractor.  Further, small businesses cannot be deemed affiliates or too closely affiliated with a large business or they could lose their small business size status.  Meaning, if your operations are so intertwined and dependent on a large business that you are essentially just a part of that large business, you could be deemed ineligible for small business set-aside work because you are too affiliated with that large business.  The intent of small business set-aside contracts is to truly help bonafide small businesses.  As a result, a substantial portion of the work and benefits of a set-aside contract need to go to small businesses.  If you need help understanding performance of work requirements, limitations on subcontracting, and the affiliation rules, please reach out to a GTPAC counselor and we would be happy to help.

Press releases:

Jacksonville Contractor Agrees to Pay $500,000 to settle False Claims Act liability

Former CEO of Virginia-Based Defense Contractor Agrees to Pay $20 Million to Settle False Claims Act Allegations Related to Fraudulent Procurement of Small Business Contracts

 

 

Recent indictments demonstrate increased focus on bid-rigging

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Companies involved in the government contracting industry should take note that the government is honing in on anticompetitive conduct affecting government procurements.  The federal government has demonstrated an increased interest in this area, and companies should refresh and audit their compliance programs to avoid hefty civil and criminal penalties and potential prison terms for implicated employees.

In the last month, the United States Department of Justice (DOJ) has announced three sets of indictments in recent months relating to bid-rigging of various government procurements and solicitations, evidencing an increased focus on anticompetitive conduct targeting federal, state and local governments.

Continue reading at:  McDermott Will & Emery

Former S.C. company executive sentenced to over 4 years in federal prison for construction fraud scheme

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United States Attorney Sherri A. Lydon announced on April 23rd, 2019 that Thomas Brock, age 62, of Camden, South Carolina, was sentenced to 51 months in federal prison after pleading guilty to wire fraud.

According to information presented during his guilty plea and sentencing, Brock was involved in a decade-long scheme to defraud the government in the acquisition of military construction contracts.  Under programs instituted by the United States Small Business Administration (SBA) and the Department of Veterans Affairs (VA), certain military and federal government contracts are specifically set aside for award to minorities, women, and service veterans.  These programs are intended to provide small businesses with an opportunity for growth and experience working through the federal government. 

Brock was an executive with Boykin Contracting and used various straw-owners within the company to pose as a female, an African-American, a disabled person, and a veteran in order to qualify for over $160 million dollars’ worth of these government construction contracts.  Based on information presented in court, Brock illegally acquired the contracts and siphoned money from the company to support a lavish lifestyle.  The scheme fell apart when Brock fraudulently acquired loans to cover the company’s losses and fell behind on the repayments, prompting a civil lawsuit and a criminal investigation.

Continue reading at:  https://www.justice.gov/usao-sc/pr/former-company-executive-sentenced-over-four-years-federal-prison-construction-fraud

DOJ refreshes guidance document on evaluation of corporate compliance programs

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Even before April’s release of the Department of Justice (DOJ) Criminal Division’s 2019 Evaluation of Corporate Compliance Programs (2019 Guidance), those operating within highly-regulated industries like government contracting and health care knew the importance of having an effective, well-tailored compliance program. 

Largely tracking the DOJ Fraud Section’s 2017 Guidance (discussion of the 2017 document is available here), the new, longer 2019 Guidance adds more detailed examples to aid federal prosecutors in evaluating compliance programs.  By making this information public, DOJ is providing companies a blueprint for the design, implementation, and evaluation of those programs that will satisfy the scrutiny of a criminal investigation.

Read more at: Wiley Rein

Firm to pay $545,000 to settle claims it sold Chinese-made equipment to U.S. government

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A Sunnyvale-based network security company has agreed to pay more than a half million dollars to settle allegations it sold Chinese-made equipment to the U.S. government in violation of the False Claims Act, according to federal prosecutors.

According to a settlement agreement made public Friday, Fortinet Inc. acknowledged that between 2009 and 2016 one of its employees directed the relabeling of products to make them appear as though they were in compliance with the Trade Agreements Act.  The act prohibits government contractors from purchasing products that are not entirely from or “substantially transformed” in the United States or other designated countries.

Prosecutors said the new labels did not include the country of origin and featured phrases such as “designed in the United States or Canada” or “assembled in the United States.” A portion of the products were then resold through distributors and subsequent resellers to U.S. government end users.

“Contractors that supply the U.S. government with Chinese-made technology will be pursued and held accountable when violating the Trade Agreement Act,” said Bryan Denny, Defense Criminal Investigative Service special agent in charge, in a statement.

Continue reading at: East Bay Times

Aluminum supplier linked to NASA rocket explosions pays millions to settle criminal charges

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A Portland aluminum company that sold NASA defective aluminum, which allegedly caused two rockets to explode shortly after launch, has agreed to pay $46 million to settle criminal charges and civil claims.

Hydro Extrusion USA LLC, formerly known as Sapa Extrusions or Sapa Profiles, allegedly covered up substandard manufacturing by altering quality test results over two decades.

These were “tests that their customers, including the U.S. government, depended on to ensure the reliability of the aluminum they purchased,” said Assistant Attorney General Brian Benczkowski of the Department of Justice’s Criminal Division. “Corporate and personal greed perpetuated this fraud against the government and other private customers, and this resolution holds these companies accountable for the harm caused by their scheme.”

Continue reading at: The Oregonian/OregonLive

Second construction company owner to enter guilty plea for bribery in connection with City of Atlanta contracts

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Charles P. Richards, Jr., of Tucker, Georgia, was arraigned Wednesday, Feb. 8, 2017, on conspiratorial bribery charges for paying over $185,000 to obtain City of Atlanta contracts.

“From approximately 2010 to August 2015, Richards conspired with E.R. Mitchell to buy lucrative construction-related contracts with the City of Atlanta,” said U.S. Attorney John A. Horn. “Contractors who willingly participate in a pay-to-play contracting system subvert the process for those who try to compete fairly and ultimately undermine the public’s trust in government.”

On Jan. 25, 2017 Mitchell, owner of E.R. Mitchell Company and several subsidiaries, pled guilty to paying over $1,000,000 to an yet-to-be-named individual in exchange for City of Atlanta contracts.

“The arraignment of Mr. Richards illustrates once again that providing bribes in order to obtain government contracts, be it city, state, or federal, can land you in the defendant’s chair as easily as for those accepting the bribes. The FBI continues to work diligently with its various law enforcement partners and federal prosecutors in identifying, investigating, and presenting for prosecution all individuals engaged in these types of criminal public corruption schemes that undermine the legitimate and established practices of government,” said David J. LeValley, Special Agent in Charge, FBI Atlanta Field Office.

“The citizens of Atlanta must be able to trust that government officials will perform their duties in the best interests of the communities they serve,” said Veronica Hyman-Pillot, Special Agent in Charge, IRS Criminal Investigation. “Charles Richards Jr. undermined the process of fair and open competition when he conspired with others to pay bribes in exchange for securing lucrative contracts with the City of Atlanta. Today’s announcement demonstrates our commitment to work in a collaborative effort to promote honest and ethical government at all levels.”

According to U.S. Attorney Horn, the charges, and other information presented in court, Richards serves as the owner and/or principal of the construction companies C.P. Richards Construction Co., Inc., and C.P. Richards & Associates, Inc.

In an effort to obtain construction-related contracts with the City of Atlanta, according to the Justice Dept., Richards and defendant Elvin R. Mitchell, Jr. conspired to pay an individual to obtain government contracts. From approximately 2010 to August 2015, Richards paid over $185,000 to an individual in exchange for City of Atlanta contracts, believing that some of the money would be paid to city official/s who exercised influence over the contracting process.

According to the U.S. Attorney’s office, Charles. P Richards, Jr., 64, will plead guilty on Feb. 16, 2017, before the U.S. District Court Judge Steve C. Jones.

This case is being investigated by the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation.  First Assistant United States Attorney Kurt R. Erskine and Assistant United States Attorneys Jeffrey W. Davis, and Jill Steinberg, are prosecuting the case.

Source: https://www.justice.gov/usao-ndga/pr/second-construction-company-owner-charged-conspiring-pay-bribes-city-atlanta-contract-0

See the initial Justice Dept. announcement in this case at: https://www.justice.gov/usao-ndga/pr/construction-company-owner-charged-paying-over-1-million-bribes-city-atlanta-contracts

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