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- Construction Company Agrees to Pay $2.8 Million to Resolve False Claims Act Allegations – read now
Construction Company Agrees to Pay $2.8 Million to Resolve False Claims Act Allegations
In this publication we have repeatedly written articles on the False Claims Act (FCA) and reported on annual recoveries under the FCA by the Department of Justice (DOJ). On May 12, 2022, the DOJ announced another FCA recovery, this time against a well-known construction company. According to the DOJ, Hensel Phelps Construction Company (Hensel Phelps), agreed to pay $2.8 million to resolve allegations under the FCA that it improperly manipulated a federal subcontract designated for a business owned and operated by a Service-Disabled Veteran. As most people know, federal government contracts and subcontracts may be reserved, or “set aside,” for various categories of small businesses, such that only eligible small businesses in a particular socioeconomic category are eligible to bid on, receive, and perform the contracts. One such category is a Service-Disabled, Veteran-Owned Small Business (SDVOSB). Under a SDVOSB set aside, a portion of a contract is reserved for small businesses owned, controlled, and operated by veterans of the United States military who incurred a disability in the course of their military service to the United States.
In this matter, the General Services Administration (GSA) awarded Hensel Phelps a contract to construct the Armed Forces Retirement Home’s New Commons/Health Care Building in Washington, D.C. As a condition of the contract, Hensel Phelps was required to have and implement a small business subcontracting plan to provide contracting opportunities for SDVOSBs and other types of small businesses.
During the course of the contract, Hensel Phelps negotiated with another large unnamed business that was not a SDVOSB to provide kitchen and food service equipment for the project. According to the DOJ, as part of the settlement, Hensel Phelps admitted that after it had fully negotiated the work with the other company, rather than executing the subcontract with that company, Hensel Phelps instead entered into a subcontract with an actual SDVOSB, providing for the same work and using the same terms and pricing that had been agreed upon between Hensel Phelps and the other company, but including an additional 1.5% fee for the SDVOSB. Hensel Phelps further admitted that it should have known that the SDVOSB was merely a pass through for the other larger company, which was providing all of the work on the subcontract, including the bonding, purchasing, and installing of all of the equipment, and that the SDVOSB’s role was limited to providing its SDVOSB status and making it appear as though an SDVOSB was performing the work.
This case began in April 2022, when a whistleblower, a company known as Fox Unlimited Enterprises, LLP, filed a qui tam complaint under seal in the U.S. District Court for the Northern District of New York. When a whistleblower, or “relator,” files a qui tam complaint, the FCA requires the United States to investigate the allegations and elect whether to intervene and take over the action or to decline to intervene and allow the relator to go forward with the litigation on behalf of the United States. The relator is generally able to then share in any recovery. Pursuant to the agreement reached with Hensel Phelps, the relator in this matter will receive $630,925 of the settlement.
The DoD Office of Inspector General’s – Defense Criminal Investigative Service (DCIS) stated that “Protecting Department of Defense contracts intended for small businesses owned by disabled veterans of the United States military is a priority for the office,” and they “will continue to work . . . to hold companies accountable for circumventing SDVOSB requirements.” In February 2022, the DOJ resolved a similar claim against another large national company, Trimark, USA, LLC, that also manipulated SDVOSB contracts and recovered over $48.5 million, including $100,000 from a former Trimark executive personally.
The FCA is very dangerous for any government contractor because of the potential for treble damages and because exposure can be initiated by almost anyone. The relator can be a disgruntled former employee, independent contractor, subcontractor, a business rival or an unrelated third party that specializes in FCA claims. Large damages, the threat of negative public exposure and even the potential for debarment make the FCA a formidable enforcement tool.
If you have questions regarding the FCA please contact any of our attorneys in the government contracts practice group.