Late last week, owners of two San Diego area companies were arraigned in federal court on charges they fraudulently obtained more than $11 million in federal contracts that were set aside for service-disable veteran-owned businesses (SDVOBs).
The two individuals "allegedly" participated in a conspiracy to defraud the Government by forming a joint venture and falsely representing the JV as an SDVOB, thereby obtaining set-aside contracts. However, it seems that there was more to this Joint Venture than met the eye.
A&D General Contracting was not an SDVOB. Action Telecom was an SDVOB. Together, they formed a JV where Action would be the managing venturer, would employ a project manager for each of the set-aside contracts, and would receive the majority of the JV's profits. Everything looked fine on paper and the Government bought off on the JV's status as an SDVOB.
However, as was later disclosed, there was a second agreement (DOJ called it a secret side agreement) that made it clear that the entire JV was a sham. This agreement stated on its face that it superseded the original agreement. The SSA (Secret Side Agreement) actually stated that the parties created the JV so that A&D General Contracting could used the Disabled Veteran Status of Action Telecomm to bid on contracts. The SSD also provided that A&D - not Action - would run the construction jobs and that A&D would keep 98 percent of every payment while Action would get only two percent.
The Government investigators accumulated a lot of other evidence that showed A&D Construction was indeed acting as the JV controlling party. You can read about this additional evidence in the DOJ Press Release. Now the individuals face very serious charges including violations of the false claims act.
It seems to us that it is very difficult these days to get away with such rent-a-vet schemes. Not only is the VA and other agencies working to cut down on this type of fraud, its to easy to investigate and find the truth. A simple visit to a job site and a few interviews will reveal a lot. Plus, competitors (i.e. real SDVOBs) are always suspicious and have a pretty good idea of their real competitors. Finally, there is a thriving whistle-blower industry out there with the prospect of sharing recoveries.