Georgia Tech Procurement Assistance Center

Construction company pays $5.4 million over disadvantaged business fraud claims

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DBE FraudA San Diego-based construction company has paid $5.4 million to resolve allegations that it fraudulently billed the federal government for work on multiple projects on military bases, including Camp Pendleton, the U.S. Attorney’s Office announced Wednesday.

It was alleged that Harper Construction Company Inc. knowingly used sham, small disadvantaged businesses and then falsely certified to the government that it used legitimate small disadvantaged businesses.

Harper Construction, a privately held general contractor, earns a substantial portion of its revenue through government contracting on construction projects across the country, prosecutors said.

The settlement involves four government contracts to construct facilities at Camp Pendleton and Camp Lejeune, North Carolina. The contracts required Harper to subcontract a certain percentage of work to small disadvantaged businesses.

Keep reading this article at: http://timesofsandiego.com/crime/2016/06/01/san-diego-construction-company-pays-5-4m-fraud-claims/

Read earlier report on this case at: http://gtpac.org/?p=7837

8(a) program participation down 34% since 2010

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8(a) Approval RateParticipation in the SBA’s 8(a) Program has declined from about 7,000 firms in 2010 to only around 4,500 today–a sharp drop of approximately 34% in only six years.

These startling numbers come from a recent SBA Office of Inspector General report, which focuses on whether the SBA properly documented the reasons for admitting certain 8(a) participants.  While that matter is interesting in its own right, the most revealing part of the SBA OIG report is the rapid decline in 8(a) Program participation, and the SBA’s plans to reverse it.

The SBA OIG report states that “[s]ince 2010, there has been a steady decline in the number of firms participating in the 8(a) Program from about 7,000 in 2010 to about 4,600 in 2015.”  As of January 2016, the numbers had dropped even more, to “approximately 4,495 participants.”

One potential reason for the low numbers: the administrative burdens of getting certified.

Keep reading this article at: http://smallgovcon.com/8a-program/8a-program-participation-down-34-since-2010/

SBA releases scorecard on small business participation in federal contracts

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The U.S. Small Business Administration (SBA) last week released its annual Small Business Procurement Scorecards, which provide an assessment of each federal agency’s annual small business contracting achievement against its goal using a grading system of A+ through F.  Government-wide, agencies received an “A” in FY 2015, reflecting achievement of small business goals in all categories except on behalf of HUBZone firms.

According to the SBA, the federal government reached its small business federal contracting goal for the third consecutive year, awarding 25.75 percent in federal contracts to small businesses totaling $90.7 billion.  The 25.75 percent of contracts awarded to small businesses represent the highest ever percentage of contracts awarded to small businesses by the government.

Small Business Goal Scorecard - All Agncies FY15

Last month, the SBA announced at a press conference that for the first time in history, the federal government has met the 5 percent goal for contracting with women-owned small businesses and record achievements for service disabled veteran-owned and small disadvantaged businesses. More information about these contracting figures can be found here.

At the individual agency level, five agencies’ grades increased from FY 2014, 16 agencies’ grades stayed the same and 3 agencies’ grades decreased.  The agency breakdown is as follows:

  • 3 agencies received an “A+” (GSA, SBA, and DOT)
  • 18 agencies received an “A”
  • 3 agencies received a “B” (HHS, NASA, and VA)
  • No agencies received a C, D, or F

Despite the fact that SBA awarded an “A” grade to 18 agencies, most of them did not meet all of the government’s overall small business goals.  The Energy Department, for example, did not meet any of the government’s five small business goals.  USAID met only two of the five goals.  Of the 18 agencies receiving a score of “A,” only Agriculture, Homeland Security, Interior, State, Treasury, and NRC met all five governmentwide goals.

About SBA’s Scorecard

According to the SBA, its annual Scorecard is an assessment tool to: 1) measure how well federal agencies reach their small business and socio-economic prime contracting and subcontracting goals, 2) provide accurate and transparent contracting data, and 3) report agency-specific progress.

Every year, the SBA works with each agency to set their prime and subcontracting goals and their grades are based on the agreed upon goals.  Each federal agency has a different small business contracting goal, determined annually in consultation with SBA.  SBA ensures that the sum total of all of the goals exceeds the 23 percent target established by law.

The individual agency scorecards released by SBA, as well as a detailed explanation of the scorecard methodology, is available online at:  https://www.sba.gov/contracting/finding-government-customers/see-agency-small-business-scorecards.

Since SBA started the current small business procurement scorecard methodology in FY 2009, six agencies have received a grade of “A+” or “A” seven fiscal years in a row (FY 2009 through FY 2015):  the Departments of Agriculture, Homeland Security, Interior, Labor, Transportation, and the Environmental Protection Agency.

The overall federal small business prime contracting performance released on April 28, 2016 by the SBA, as well as a detailed explanation of the calculations, is available online at http://go.usa.gov/Nxxd.

Contractor files lawsuit over DBE-related lost $77 million bridge contract

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Arkansas_State_Highway_and_Transportation_DepartmentA Texas-based contractor has filed a lawsuit against the Arkansas State Highway and Transportation Department over the department’s cancellation of a $77.6-million bridge contract for alleged failure to document disadvantaged business enterprise (DBE) involvement efforts. The department has made a claim against the contractor’s bid bond.

The contractor, Roanoke, Texas-based Johnson Bros. Corp., had in January submitted a very low bid to replace a bridge carrying highway I-40 over the White River between Little Rock and North Little Rock. The second-low bid came in about $40 million higher.

Filed in the Pulaski County circuit court of Arkansas in Little Rock on March 9, Johnson Bros. names as defendants the state’s highway commission, the commission members individually and the department’s chief engineer. The petition requests judicial review of February administrative decisions that found the contractor’s efforts to involve DBEs in the project insufficient, reject the bid, make a claim under the bid bond and ban the contractor from rebidding on the project.

The petition also claims that the highway commission took no action on a petition to review the department’s decision and request for injunctive relief.

State officials had conditionally awarded the contract to Johnson Bros. Corp. based on the company’s low bid.

Keep reading this article at: http://www.enr.com/articles/39253-arkansas-cites-dbe-rule-and-halts-bridge-contract

Governments struggle to root out fake minority contractors

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DBE Fraud HotlineMargie Sollinger knew something wasn’t right about the companies doing business with Portland, Oregon. As the city’s ombudsman, Sollinger had for some time been hearing from business owners about fraud in the city’s minority- and women-owned contracting program. But it wasn’t until she received a specific complaint in 2013 — about a certified minority-owned construction firm doing work for Portland’s housing authority — that she decided to take action. According to the complaint, the firm was merely acting as a pass-through, winning valuable city contracts and then subcontracting the work out to non-minority companies.

Like many cities and states, Portland has a program allowing it to give special consideration to women- and minority-owned companies when handing out government contracts. The goal, of course, is to help support traditionally disadvantaged companies by giving them a leg up. But as Sollinger began to discover, the city wasn’t necessarily helping the firms it thought it was.

When she first started looking into the housing contract complaint, she wasn’t sure where to turn. “As ombudsman, the most I can really do is make recommendations,” she says. “But even still, I reached a lot of dead ends.” According to state law, the city of Portland wasn’t allowed to take action against minority-owned firms it believed to be fraudulent; those complaints had to be referred to the state. But Sollinger says the state Office of Minority, Women and Emerging Small Businesses initially shrugged her off. So she referred the case to the Oregon Department of Justice, where the investigation continued for nearly two years. Ultimately, the contracting firm was forced to relinquish its minority certification and pay $15,000 to the state. State legislators took an interest in the issue, and last year passed legislation allowing all public agencies in the state to conduct their own investigations into future allegations of minority contract fraud.

Keep reading this article at: http://www.governing.com/topics/mgmt/gov-women-minority-contracting.html

Related: http://www.governing.com/columns/col-problem-with-preferential-bids.html

Sentence reduced for company president who engaged in fraudulent DBE contracts worth $136 million

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DBE Fraud HotlineThe former chief operating officer and co-owner of now-defunct Schuylkill Products Inc. will spend 10 fewer months in prison, but pay the same fine, after being resentenced Wednesday in federal court in Harrisburg, Pennsylvania for his role in the largest fraud of its kind in U.S. history.

Ernest G. Fink Jr., 70, of Orwigsburg, Pennsylvania, must serve 41 months in federal prison and pay $25,100 in fines, Senior U.S. District Judge Sylvia H. Rambo ruled.

Rambo originally sentenced Fink on July 14, 2014, to 51 months in prison and $25,100 in fines after he pleaded guilty to participating in Schuylkill Products’ scheme to defraud the federal Disadvantaged Business Enterprise (DBE) program.

Federal prosecutors charged Fink and several other Schuylkill Products executives with using Marikina Engineers and Construction Corp., West Haven, Connecticut, as a front under the DBE program from 1993 until 2008 to funnel work to the Cressona company and its wholly owned subsidiary, CDS Engineers Inc.

Keep reading this article at: http://republicanherald.com/news/schuylkill-products-co-owner-resentenced-to-10-fewer-months-in-prison-1.2011402

See our earlier articles on this case:

Yet another DBE fraud case: Steel company execs get $1 million fine, 5 years’ probation

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Phony owner of DBE gets 3 years of probation and is ordered to pay $336,219 in restitution.

Two Pennsylvania men who funneled business to their family’s steel construction firm by using a shell company to qualify as a disadvantaged business enterprise (DBE) must repay the government $1 million.

U.S. District Judge Lawrence Stengel last week sentenced brothers Dennis Weber, 66, and Dale Weber, 52, to five years of probation and ordered them to pay restitution to the government for the scheme, which netted Carl M. Weber Steel Service hundreds of government construction contacts between 1995 and 2011.

Stengel also sentenced Judy Noll, of Mertztown, the owner of Karen Construction, to three years of probation and ordered her to pay $336,219 in restitution, according to a court filing Wednesday.

Each pleaded guilty in October to conspiracy to commit wire fraud. Their attorneys could not be reached.

Prosecutors said Karen Construction was a sham that the three used to obtain bridge and highway construction contracts through a U.S. Department of Transportation program for disadvantaged businesses.

Keep reading this article at: http://www.mcall.com/news/breaking/mc-berks-steel-fraud-sentences-20160207-story.html

Construction officials pay $1 million to settle DBE fraud

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Justice Dept. sealAn upstate New York construction company and three individuals have paid $1,012,000 to resolve claims that they defrauded a government program designed to benefit women- and minority-owned contractors, announced U.S. Attorney Richard S. Hartunian. The settling parties are ING Civil, Inc. and its owner, Corey Ingerson; James Beaudoin, who is the former president of Rexford Albany Municipal Supply Company, Inc. (RAMSCO); and former RAMSCO salesman John Leary.

The U.S. Department of Transportation (USDOT) has promulgated 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. USDOT also administers a Disadvantaged Business Enterprise (DBE) program that requires 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 a DBE’s participation on a project only if the DBE serves a “commercially useful function.” A DBE performs a commercially useful function when it is responsible for execution of a distinct element of work on a contract. 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 members of a historically disadvantaged group worked on a contract.

The settlements resolve the following allegations:

  • In 2009, when preparing to submit a bid to the City of Cohoes to reconstruct the Bridge Avenue Bridge over the Mohawk River, Corey Ingerson spoke with John Leary to see if RAMSCO would provide a quote for materials that ING Civil would need if awarded the project. Leary explained to Ingerson that RAMSCO could both provide the materials for the project and bill them through a DBE, American Indian Builders & Suppliers, Inc. (AIB), to help ING Civil satisfy the project’s DBE goals. Shortly thereafter, Ingerson learned that ING Civil had been awarded the project, and he signed a DBE Utilization Worksheet representing that AIB would supply $306,285 worth of materials for the project. When Ingerson signed the DBE Utilization Worksheet agreeing to work with AIB, he knew virtually nothing about the company and had not had any substantive discussions with anyone from AIB about the materials needed for the project. All of Ingerson’s discussions on that topic were with RAMSCO officials. ING Civil ended up purchasing all materials on its DBE Utilization Worksheet from RAMSCO, rather than AIB.
  • In November 2010, after work on the Bridge Avenue Bridge was substantially complete, local government officials asked Ingerson to document ING Civil’s DBE expenditures on the project. Ingerson then contacted Leary to explain that ING Civil did not have the documentation necessary to support a claim that it had purchased materials from AIB, as it had represented it would do on its DBE Utilization Worksheet. At that time, Leary and Ingerson decided to prepare documents to create the appearance that the materials ING Civil purchased from RAMSCO had been purchased from AIB. Over the next few months, officials from ING Civil, RAMSCO, and AIB exchanged invoices, purchase orders and other documents to make it appear as though ING Civil had purchased materials from AIB that it had actually purchased from RAMSCO. In February 2011, ING Civil submitted electronic documentation to the City of Cohoes falsely representing that it had satisfied its DBE goals on the project by working with AIB.

In the settlement agreement, Ingerson admitted that he made a false filing indicating that materials for the Bridge Avenue Bridge project had been supplied by AIB when, at the time he made that filing, he knew the materials had been provided by RAMSCO, which was not a DBE. Beaudoin (for RAMSCO) and Leary admitted that they took steps to aid ING Civil in making that false filing. The parties also acknowledged that their conduct violated the False Claims Act.

In August 2015, HD Supply Waterworks, a company that acquired RAMSCO, paid $4,945,000 to resolve allegations that it also enabled several prime contractors to represent falsely that AIB had performed commercially useful functions on federally-funded contracts. Each of these investigations and settlements were the result of a coordinated effort among the United States Attorney’s Office for the Northern District of New York, USDOT’s Office of Inspector General and the U.S. Environmental Protection Agency’s Office of Inspector General, with the assistance of the Federal Bureau of Investigation and the New York State Department of Transportation’s Investigations Bureau.

Source: http://www.justice.gov/usao-ndny/pr/upstate-new-york-construction-company-and-individuals-pay-more-1-million-settle-fraud

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.

Drew 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.

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