A Chicago-based construction company will pay the United States and the State of Illinois $12 million to resolve allegations of fraud on government programs designed to benefit women- and minority-owned sub-contractors under the terms of a civil settlement agreement announced May 1, 2014. The contractor, James McHugh Construction Co., Inc., allegedly failed to abide by federal and state requirements for the participation of disadvantaged business enterprises (DBEs) in contracts to perform seven construction projects involving roads, highways, and transit lines, funded by the federal and state governments between 2004 and 2011.

The federal and state governments claimed that McHugh violated the federal and Illinois False Claims Acts by making false statements and claims for payment to government agencies regarding McHugh’s compliance with federal and state requirements to include DBEs in the construction projects.

As a result of the $12 million settlement, the federal government will receive $7.2 million and the state government will receive $4.8 million. In a separate administrative settlement and compliance agreement, McHugh agreed to implement a corporate compliance program, appoint a compliance officer, and be subject to an independent monitor for three years, in exchange for the federal, state, and City of Chicago transportation agencies and contracting authorities’ agreement not to bar McHugh from future government contracts. This allows McHugh to continue pursuing and performing public works projects while ensuring that it remains compliant with DBE regulations.

“It was more costly in the long run for McHugh to avoid its obligations to hire women and minority-owned businesses than it would have been simply to comply with the requirements and retain disadvantaged businesses to actually participate in these public construction projects,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois. “It’s important that McHugh and other companies realize that compliance with these requirements is both a good business decision and the right thing to do,” he added.

The investigation revealed that McHugh Construction falsely used subcontractors to help secure bids for major public construction projects. Specifically, the company used women-owned small businesses to submit false claims to the state and federal governments for millions of dollars when in fact, those businesses never completed the level of work required by law.

The settlement arose from a lawsuit that was filed in 2008 by Ryan Keiser, who was a project manager for Perdel Contracting Corp. and Accurate Steel Installers, Inc. (ASI), at three of the McHugh construction sites. The lawsuit was filed under the qui tam or whistleblower provisions of the federal and state False Claims Acts.

The federal and state statutes permit private individuals to sue for “false claims” on behalf of the government and to share in any recovery. Mr. Keiser will receive 17 percent of the $12 million settlement or $2,040,000 ― $1,224,000 from the United States share, and $816,000 from Illinois’ portion of the settlement.

The federal and state governments contended that in bids for these contacts, in the final contracts, and in claims for payment, McHugh falsely stated that Perdel and ASI, which were both certified as DBE firms owned by Elizabeth Perino, would perform or had performed work on the projects in satisfaction of federal and state DBE participation requirements in the contracts. The governments contended that contrary to McHugh’s statements, Perdel and ASI often functioned merely as “pass-throughs,” performing little, if any, work that would qualify for participation credit under federal and state DBE requirements. Perino, who owned Perdel and ASI in Lockport, was charged with federal mail fraud in 2011, and the case remains pending.

According to the settlement agreement, the governments also contended that Perdel and ASI’s contracted work for McHugh often exceeded the companies’ capacity and experience. Although their projects with McHugh were substantially greater in size and scope than they had previously performed, Perdel and ASI’s expertise to perform larger and more complex projects did not change correspondingly. Rather than Perdel and ASI performing, managing, or supervising the work that McHugh represented they would, McHugh frequently managed union workers they each hired. In some cases, McHugh directed Perdel and ASI as to which union crews to hire.

McHugh, not Perdel or ASI, also selected certain suppliers on each of the contracts, determined the quantity and quality of those materials, negotiated the price, and often drafted a purchase order for Perdel or ASI to put on their letterhead, the governments contended.  That kind of conduct violates federal and state provisions that are designed to give a share of the actual work of government-funded construction projects to minority- and women-owned businesses.

The settlement is neither an admission of liability by McHugh nor a concession by the state and federal governments that their contentions are not well founded, and McHugh expressly denies the claims.

The settlement was reached on behalf of the U.S. Department of Transportation, the Illinois Department of Transportation, the Illinois State Toll Highway Authority, and the Regional Transportation Authority.

The separate three-year administrative monitoring settlement and compliance agreement was reached between McHugh and the Federal Transit Administration, the Federal Highway Administration, the U.S. and Illinois Transportation Departments and their procurement officers, and the City of Chicago. In exchange for the government entities’ agreement not to pursue any suspension or debarment action against McHugh for the covered conduct, McHugh agreed to implement a corporate compliance program and appoint a compliance officer who is knowledgeable about DBE programs. The company also agreed to retain an independent monitor to evaluate McHugh’s performance and submit periodic reports to the government agencies and officials, and to make six presentations to those agencies and officials to discuss and promote compliant policies and procedures for working with DBE firms.

Source: http://www.justice.gov/usao/iln/pr/chicago/2014/pr0501_01.html