Georgia Tech Procurement Assistance Center

Company to pay fine and forfeiture of $1.8 million for obtaining federal contracts earmarked for 8(a) firms

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The Justice Department’s Antitrust Division has announced that MCC Construction Company (MCC), a construction management company and general contractor headquartered in Colorado, has agreed to pay $1.8 million in criminal penalties and forfeiture for conspiring to commit fraud by illegally obtaining government contracts that were intended for small disadvantaged businesses.  

Justice Dept. seal - CopyThe firms were certified by the Small Business Administration (SBA) as 8(a) firms.

MCC Construction Company secured millions of dollars in contracts by hiding behind two small businesses that did not perform labor on the projects. In doing so, MCC took away opportunities that could have gone to companies that are socially and economically disadvantaged.

The case against MCC was filed last month in the U.S. District Court for the District of Columbia charging the company with one count of knowingly and willfully conspiring to commit major fraud on the United States.  MCC waived the requirement of being charged by way of federal indictment, agreed to the filing of the information and accepted responsibility for its criminal conduct and that of its employees.  U.S. District Judge Ketanji B. Jackson accepted the company’s guilty plea on Feb. 2, 2016.  The plea agreement is subject to the court’s approval at a sentencing hearing scheduled for March 15, 2016.

SBA sealAccording to court documents, MCC conspired with two companies that were eligible to receive federal government contracts set aside for 8(a) firms with the understanding that MCC would, illegally, perform all of the work.  In so doing, MCC was able to win 27 government contracts worth over $70 million from 2008 to 2011.  The scope and duration of the scheme resulted in a significant number of opportunities lost to legitimate 8(a) businesses.

Under the illegal agreement, the companies awarded these government contracts were allowed to keep 3 percent of the value of the contracts for allowing MCC to use the companies small business status to win the contracts.

Court documents state that MCC violated the provisions of the SBA 8(a) program.  The SBA’s 8(a) Business Development Program is designed to award contracts to businesses that are owned by “one or more socially and economically disadvantaged individuals.”  To qualify for the 8(a) program, a business must be at least 51 percent owned and controlled by a U.S. citizen (or citizens) of good character who meet the SBA’s definition of socially and economically disadvantaged.  The firm must also be a small business (as defined by the SBA) and show a reasonable potential for success.  Participants in the 8(a) program are subject to regulatory and contractual limits.  Also, under the program, the disadvantaged business is required to perform a certain percentage of the work.  For the types of contracts under investigation here, the SBA 8(a)-certified companies were required to perform 15 percent or more of the work with its own employees.

MCC, along with the two 8(a) companies used to illegally obtain the contracts, engaged in and executed a scheme to defraud the SBA by, among other things:

  • Allowing the two 8(a) companies to retain a guaranteed percentage of each contract for simply obtaining the contracts for MCC;
  • Allowing the two 8(a) companies to perform no labor on these projects;
  • Performing the accounting and government reporting for the two 8(a) companies on certain projects;
  • Falsely representing to the government that MCC employees were in fact employees of the 8(a) companies;
  • Obtaining certain contracts on behalf of the 8(a) companies without first informing those 8(a) companies prior to bidding; and
  • Conspiring with the 8(a) companies to hire straw employees for the 8(a) companies whose labor and salaries were paid for by MCC.

For the contracts obtained through this scheme on which MCC made a profit, MCC’s profit was at least $1,269,294.  The criminal penalty in this case includes a $500,000 fine and a forfeiture money judgment of $1,269,294.

Source: http://www.justice.gov/opa/pr/mcc-construction-company-agrees-pay-nearly-18-million-conspiring-illegally-obtain-federal

North Carolina construction company officials sentenced for DBE fraud

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U.S. District Judge Max O. Cogburn, Jr. sentenced Boggs Paving, Inc. (Boggs Paving), its president and part-owner, Carl Andrew “Drew” Boggs, III, and four others on charges stemming from the illegal use of a disadvantaged business enterprise to obtain government-funded construction contracts, it was announced November 23, 2016.

USDOTDrew Boggs, 51, of Waxhaw, N.C. was sentenced to 30 months in prison and two years of supervised release, and received a $15,000 fine after pleading guilty to conspiracy to defraud the United States Department of Transportation (USDOT) and money laundering conspiracy.  Kevin Hicks, 44, of Monroe, N.C., was sentenced to two years of probation and was ordered to pay a $2,000 fine, after pleading guilty to conspiracy to defraud USDOT and money laundering conspiracy.  Greg Miller, 61, of Matthews, N.C., was sentenced to 15 months in prison and two years of supervised release, Greg Tucker, 42, of Oakboro, N.C., was sentenced to two years of probation and was ordered to pay a $1,000 fine, and John Cuthbertson (a/k/a Styx Cuthbertson), 70, of Monroe, was sentenced to two years of probation, three of which will be served in home confinement, and was ordered to pay a $2,000 fine.  They each pleaded guilty to one count of conspiracy to defraud USDOT.  Judge Cogburn sentenced the company, Boggs Paving, to pay a $500,000 fine.  A fifth codefendant, Arnold Mann, 56, of Fort Mill, S.C., was previously sentenced to a term of probation, after pleading guilty to one count of conspiracy to defraud USDOT.

According to documents filed in the case, statements made in court and today’s sentencing hearings, from 2003 through 2013, Boggs Paving, Drew Boggs, and their codefendants engaged in a scheme by which they fraudulently obtained federally and state funded construction contracts by falsely certifying that a disadvantaged business enterprise (DBE), or a small business enterprise (SBE) would perform and be paid for portion of the work on those contracts.  The purpose of USDOT’s DBE program is to increase the participation of such businesses in federally-funded public construction and transportation-related projects.

According to court records, Boggs Paving and the codefendants used Monroe-based Styx Cuthbertson Trucking Company, Inc. (“Styx”), a road construction hauler and a certified DBE and SBE, to help obtain the government-funded construction contracts.  Court documents show that the codefendants took steps to conceal their fraud, including running payments for the work performed through a nominee bank account in Styx’s name and using magnetic decals bearing the “Styx” company logo to cover the “Boggs” logo on company trucks, among others.  According to court records, the majority of the money was funneled back to Boggs Paving and its affiliates, and John Cuthbertson, owner of Styx, received kickbacks for allowing his company’s name and DBE status to be used by Boggs Paving.

Court records show that from June 2004 to July 2013, Boggs Paving was the prime contractor on 35 federally-funded contracts, and was a subcontractor for two additional contracts, worth over $87.6 million.  Boggs Paving claimed DBE credits of approximately $3.7 million on these contracts for payments purportedly made to Styx.  Styx only received payments of approximately $375,432 for actual work on these contracts, court records show.

In court today, Judge Cogburn described the DBE program as laudable and emphasized the importance of deterrence in sentencing the defendants.

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

Georgia-based firm agrees to pay $4.9 million to resolve DBE fraud allegations

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HD Supply Waterworks – Atlanta-based and the nation’s largest supplier of water, sewer, fire protection and storm drain products – has agreed to pay the government $4,945,000 under the False Claims Act to resolve allegations that it participated in a scheme designed to take advantage of the Disadvantaged Business Enterprise (DBE) program in order to obtain subcontracts on federally-funded projects.

DBE Fraud HotlineThe U.S. Department of Transportation (DOT) and the U.S. Environmental Protection Agency (EPA) have regulations intended to provide opportunities for businesses owned by socially and economically disadvantaged individuals to perform work on projects financed, at least in part, by the federal government. Those agencies administer DBE programs that require state and local governments receiving federal funding to establish goals for the participation of DBEs on federally-funded projects. A contractor may claim credit for DBE participation on a project only if the DBE serves a “commercially useful function.”  A DBE does not serve a commercially useful function if its role is limited to that of an extra participant to a transaction through which funds are passed to create the impression that one or more members of a historically disadvantaged group worked on a project.

In 2008, authorities began investigating prime contractors that claimed to have conducted business with the now-defunct American Indian Builders & Suppliers, Inc. (AIB), a Native American-owned company certified as a DBE in New York and in other states. The investigation revealed that several prime contractors listed AIB as a subcontractor that had worked on or supplied materials for federally-funded projects when it did neither. Instead, a third party that would not itself qualify as a DBE performed the work or supplied the materials, and received much of the financial benefit. For its role, AIB would collect a small percentage of the subcontract amount as compensation for the fraudulent use of its name and DBE status.

The U.S. Department of Justice alleges that HD Supply Waterworks enabled several prime contractors to represent falsely that AIB had performed a commercially useful function on federally-funded contracts by negotiating price and other terms of sale when, in reality, the prime contractors had negotiated such terms with Waterworks and used AIB as a mere pass-through.

HD Supply Waterworks acknowledged in the settlement agreement, released August 14, 2015. that AIB served as a pass-through by collecting invoices from HD Supply Waterworks, transferring the information from those invoices to AIB’s own invoices, adding a markup, and passing the AIB marked-up invoices on to the prime contractors. The government alleges that the conduct described above enabled prime contractors to certify falsely that AIB supplied materials when the parties – i.e., HD Supply Waterworkss, AIB, and the prime contractors – knew that was not the case, resulting in the submission to government entities of false or fraudulent claims for payment from federal funds.

According to the U.S. Attorney’s office, HD Supply Waterworks “enabled prime contractors to certify falsely that American Indian Builders & Suppliers served as a subcontractor on government-funded projects, thwarting the program’s objective of creating a level playing field for legitimate minority and women-owned businesses to compete fairly on such projects.” According to the statement, the DOJ “will vigorously pursue unscrupulous contractors who engage in schemes to divert grant funds away from those for whom the money was intended.”

“Disadvantaged Business Enterprise fraud like that perpetrated by HD Supply Waterworks harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts,” said Douglas Shoemaker, regional Special Agent-in-Charge of the DOT Office of Inspector General (DOT-OIG). “Our agents will continue to work with the Secretary of Transportation, the Administrator of Federal Highways, and our federal, state, and local law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes that adversely affect public trust and DOT-assisted highway programs throughout New York and elsewhere.”

In addition, “EPA OIG will continue to work to ensure that the Disadvantaged Business Enterprise programs are used for their intended purposes,” said Thomas Muskett, Special Agent in Charge for the EPA Office of Inspector General’s Washington Field Office, which covers the mid-Atlantic and northeastern United States. “Our agents are pleased to have contributed to the successful resolution of this investigation.”

Source: http://www.justice.gov/usao-ndny/pr/hd-supply-waterworks-pay-nearly-5-million-resolve-grant-fraud-allegations

 

Prime contractor pays $2.4 million to settle DBE fraud allegations

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U.S. attorneys, the FBI, labor and transportation officials announced on April 7, 2014 that  Connecticut-based construction company Manafort Brothers, Inc. will pay $2.4 million and implement internal reforms subject to independent monitoring to resolve a multi-agency joint criminal and civil investigation into alleged fraud committed by the company in connection with a public works project that commenced in 2007.

As part of the resolution, Manafort admitted that it made false statements to the United States and the State of Connecticut Department of Transportation that disadvantaged business enterprises (DBE) performed subcontracted work on the federally and state funded relocation of Route 72 when, in fact, non-DBE performed the work.

Manafort submitted a bid to ConnDOT to serve as the general contractor on a federally and state funded road project.  All qualifying bids were required to designate a percentage of work that would be performed by DBE, a requirement designed to provide socially and economically disadvantaged contractors, who have faced historical barriers to entry in the construction industry, with fair opportunities to compete for federally funded work.

The State of Connecticut Department of Transportation (ConnDOT) determined that Manafort was the apparent low bidder for the project with bid of approximately $39,663,000.  According to the pre-award bid documents, Manafort represented to ConnDOT that a particular DBE, identified as “Company #1,” would perform work under the contract totaling approximately $3,064,372, or 70 percent of the overall DBE goal.  In its pre-award submission package, Manafort stated that Company #1 would furnish all supervision, labor and materials in respect to the work covered by the subcontract agreement.  This work involved being responsible for the project’s reinforcing steel, materials for structural steel, furnishing a pedestrian bridge that would span the new roadway and the majority of work for a large retaining wall adjacent to the new highway.

The contract for the project was officially awarded to Manafort in August 2007 based, in part, on its representations that Company #1 would perform the work described in Manafort’s pre-award submission. However, during the course of the project, it was determined Company #1 was not performing most of the work that Manafort claimed it was performing.  In fact, the investigation revealed that Manafort was utilizing Company #1 essentially as a pass-through entity.  That is, Manafort would negotiate with and supervise subcontractors that it procured to perform work that Company #1 was supposed to perform or procure and supervise.  The Government maintains that Manafort arranged to pay those contractors through Company #1 to skirt DBE regulations.

Under the terms of a non-prosecution agreement and civil settlement agreement with the government, Manafort represented that it has undertaken various remedial measures to ensure compliance with the DBE programs for its current and future federally funded construction projects.  These measures include establishing a position for an Ethics and Compliance Officer at Manafort, forming a DBE compliance committee that meets regularly to review and address DBE-related issues, mandating DBE compliance training for Manafort employees, deploying software to insure that DBE are qualified to perform the work that they bid, removing the Manafort personnel directly involved in the misconduct, and continuing to assist law enforcement in its investigation.  Manafort has also agreed to pay a civil fine of $2,460,722.02.

Manafort sought an unfair and illegal advantage over its competitors and deprived disadvantaged businesses of an opportunity to perform work on this taxpayer funded construction project.  The non-prosecution agreement announced by the U.S. Attorney’s office in Connecticut addresses only the corporate criminal liability of Manafort, not potential criminal charges for any individual.

More details available at: http://www.justice.gov/usao/ct/Press2014/20140407-1.html.

Michigan subsidiaries of Georgia company to pay $3.8 million for falsely claiming DBE credits

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The Justice Department announced on Jan. 9, 2014 that two related entities, Michigan-based Cadillac Asphalt LLC (Cadillac) and Michigan Paving and Materials Co. (MPM), have agreed to pay $3.8 million to resolve allegations that they falsely claimed Disadvantaged Business Enterprise (DBE) credits on a number of federally funded transportation projects.  Both Cadillac and MPM are subsidiaries of Oldcastle Materials Inc., a construction material and services provider based in Atlanta.

“The Disadvantaged Business Enterprise program helps businesses owned by minorities and women to work on federally funded projects,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “Those who falsely claim credits under the program to obtain federal funds victimize both the taxpayers and the businesses that the program is designed to assist.”

“The U.S. Attorney’s Office works with the Civil Division in Washington to use civil enforcement to recover funds for taxpayers,” said U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade.  “In this case, civil attorneys were able to recover more than $3 million that was obtained through false claims.”

The settlement announced today resolves allegations that Cadillac and MPM knowingly and falsely claimed DBE credit for asphalt purportedly supplied by a DBE known as BN&M Trucking Inc.  As a condition of federal funding, contractors, such as Cadillac and MPM, working on a federally funded project must make a good-faith attempt to meet DBE participation goals.  For the contractors to meet their DBE participation goal, a DBE employed by the contractors must be independently responsible for performing a portion of the work with its own employees and equipment.  Allegedly, BN&M Trucking was merely a pass-through company that did not supply any asphalt or perform any other commercially useful function.

“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 of USDOT’s Office of Inspector General Michelle T. McVicker.  “Working with the Secretary of Transportation, other DOT leaders and our law enforcement colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse and violations of law.”

The allegations resolved by the settlement involved numerous federally funded transportation projects in Michigan between 2006 and 2010, including a project to construct a new runway at Detroit Metropolitan Wayne County Airport in 2008 and 2009.  In November 2010, two other entities, John Carlo Inc. and Angelo Iafrate Construction Co. Inc., paid more than $1 million to resolve similar allegations related to the airport runway project.

This case was handled by the Justice Department’s Civil Division, Commercial Litigation Branch, the U.S. Attorney’s Office for the Eastern District of Michigan and the Department of Transportation Office of Inspector General.  The claims settled in this case are allegations only; there has been no determination of liability.

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