Wednesday, October 18, 2017

Contractor Pays $2.6 Million to Settle False Claims Act Violation

What do you do when you are awarded a Government contract and you find that you are unable to find qualified applicants to fill the positions? Or, what do you do when you are awarded a Government contract and you find that qualified applicants cost a lot more than you bid for those positions? In one case, you risk defaulting under the contract. In the other, you put your company in financial jeopardy. Or, you could falsify employee qualification records and carry on.

Triple Canopy in Reston VA faced that dilemma with a security guard contract in Iraq. The company was to provide security support to the Government's relief and reconstruction efforts in Iraq by providing a variety of security services at the second largest air base in Iraq. However, the security guards it employed, did not meet the minimum qualifications specified by the Army.

Triple Canopy hired security guards who could not pass contractually required firearms proficiency tests. The tests were designed by the Army to ensure that the guards hired to protect U.S. and allied personnel were capable of firing their assigned weapons safely and accurately. To avoid getting caught, Triple Canopy created false test scorecards that it was required to maintain for Government review. Ultimately, the Government paid for the unqualified guards.

Triple Canopy's scheme fell apart when a company whistle-blower came forward and filed a Qui Tam action. The Government intervened and Triple Canopy agreed to pay $2.6 million to settle the suit. Of the $2.6 million, the whistleblower will receive approximately $500,000.


Tuesday, October 17, 2017

Procurement Fraud Prevention Act

Senate Bill 938 would require GSA (General Services Administration) in consultation with the Office of Management and Budget (OMB), to ensure that any direct communications with small businesses about providing goods and services to the Federal Government contain a notice that technical assistance from the Federal Government on the procurement process is available to small businesses at no cost.

We explained this bill in some detail back in May (see Proposed Legislation to Notify Small Businesses of Free Procurement Assistance). The intent is to help protect small businesses from falling victim to fraud when they register to sell their products and services to the Government. We're not sure what kind of procurement fraud that SAM (System for Award Management) registrants are susceptible to. Neither of the Senate sponsors (Peters and Collins) provided any studies or anecdotal evidence of procurement fraud. We know from personal experience that SAM registration will result in many offers of assistance for a fee. Sometimes such paid assistance is no better than what is available for free through DLA's Procurement Technical Assistance Centers (PTAC) or SBA assistance. However, we would not call that procurement fraud.

The Congressional Budget Office (CBO) reported that the Bill, if enacted, would have negligible impact on spending or revenues for the next 10 years, and would impose no costs on state, local, or tribal governments. That is intuitively obvious.

The Bill took another step toward enactment earlier this month when the Senate Committee on Homeland Security and Governmental Affairs reported favorably in support of the legislation.

Finding and utilizing free resources is a good place to start for small businesses just getting started in Government contracting. The PTACs in particular have a lot of resources and a good track record in helping companies through the maze of procurement regulations.

Monday, October 16, 2017

40 Months in Prison for Accepting $35,000 in Gratuities

We read this Justice Department Press Release from last Friday about a former Navy comptroller from the Norfolk Ship Support Activity being sentenced to 40 months in prison because he accepted $35,000 in gratuities over a four year period from a Government subcontractor. These gratuities were not paid in cash but consisted of cell phone service for he and his wife, and some other personal electronic items. We thought the punishment (3 plus years in prison plus restitution) seemed severe and certainly not typical of what we have come to expect based on similar prosecutions. That is, until we dug a little deeper than just the Justice Department's press release.

Why would a high-ranking Government employee, making somewhere around $150,000 a year, jeopardize his job, his career, his reputation, and his future by accepting a few thousand dollars of trinkets and junk jewelry? How does that even fit into the fraud triangle concept (perceived unshareable financial need, perceived opportunity, and rationalization)? Turns out, the case was not so much the gratuities he received but more about what he was setting himself up to receive after he retired from the Government.

The comptroller found a company that would collaborate with him to misuse Government funds; Global Services Corporation (GSC). He then directed that a certain (unnamed) prime contractor to award a subcontract to GSC. He then directed the prime contractor to pass Government funds to GSC. He then directed GSC to withhold unexpended funds that should have been returned to the  Government via the prime contractor. Obviously, the Navy comptroller had a lot of undue influence over the operations and activities of GSC. The complaint called GSC a willing participant in the scheme.

When all was said and done, the Navy controller, through the prime contractor parked about $5 million with GSC for which no services were ever rendered. What did the Navy comptroller get out of it besides $35 thousand in electronics? The promise of post-retirement employment at $150,000 per year to be paid out of the $5 million slush fund. He never got there. The scheme was uncovered before he retired by a routine audit by the Naval Audit Service. Now he will be spending the next few years of his retirement in prison.

The President of Global Services Corporation (GSC) also pleaded guilty on related charges. He is set to be sentenced later this year.

Friday, October 13, 2017

Company President Found Guilty of Fraud Against the Government

A jury has found the owner of Armet Armored Vehicles Inc. guilty of defrauding the U.S. Government on a contract for 32 Gurkha armored gun trucks. The company (and by extension the owner) lied about the ballistic and blast protection capabilities of their Gurkha gun trucks as well as only delivering seven of the promised 32 vehicles contracted for and delivering those seven vehicles long after the contract delivery date.

Evidence at trial demonstrated that the owner executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored. Although the gun trucks did not meet contractual specifications, the company and its employees represented that the trucks were adequately armored.

After the verdict, the Judge in the case took the unusual step of remanding the owner into custody pending a full bond hearing. Perhaps he was considered a flight risk. A sentencing date has not yet been scheduled.

This case began with a whistleblower suit by a company employee.

The Gurkha is an armored military and law enforcement vehicle. It is based on a Ford F550 chassis with a 6.7 liter diesel engine but is typically customized to the user's needs.

A previous civil action involving this incident was settled in favor of Armet. Read more about this case in the Justice Department press release.

Thursday, October 12, 2017

Subcontractor Pays $235 Thousand to Settle False Claims Charges

Late last month, we wrote about a $2 million settlement involving a DOE (Department of Energy) subcontractor who subcontracted some of its work to a third company who, it turned out, was a small  woman-owned business but had no employees or equipment (see $2 Million Settlement in Small Business Subcontracting Fraud).

This week, the Justice Department announced settlement with the other company, Sage Tec LLC. Sage Tec and its owner agreed to pay $235,000 to resolve allegations that it violated the False Claims Act (FCA) in connection with two small business subcontracts.

The prime contractor, responsible for environmental remediation at Hanford, was required to award a certain percentage of subcontracts to eligible and qualified small and disadvantaged businesses, including woman-owned small businesses. The requirement flowed down to its subcontractors as well. One of the subcontractors, FE&C (Federal Engineers and Constructors) awarded two subcontracts to Sage-Tec, an entity that purported to be a small, disadvantaged business. 

Initially, a lawsuit was brought forth by a whistleblower. The Government later enjoined the suit. The basic charge was that the prime contractor, FE&C, and Sage Tec knowingly misrepresented Sage Tec to be a qualified disadvantaged small business in order to be eligible for two multi-million  dollar subcontracts that were designated for truly qualified small disadvantaged businesses. Sage Tec, it turns out, was not a legitimate small, disadvantaged business; rather it was a pass-through front company for FE&C, which performed substantially all of the work that should have been performed by Sage Tec.

The Government continues to investigate the Prime contractor for its role in the matter. The original whistle-blower stands to make a lot of money. On this Sage Tec settlement, the whistleblower will receive $47 thousand. On the aforementioned FE&C settlement, the whistleblower earned $470 thousand. If the prime contractor settles, the whistleblower will probably get a cut of the settlement amount as well.

You can read the full Justice Department press release here.

Here's a link to a related article appearing in the local newspaper.