Salamirad Morrow | Attorneys at Law

THING YOU NEED TO KNOW BEFORE JUMPING INTO THE SET-ASIDE MARKET

Released on: September 8, 2014 | Category: News | Author: Ali Salamirad

Preferential contracting programs such as the Small Business Administration’s 8(a), HUBZone, Service-Disabled Veteran-Owned and Women-Owned Business and various Disadvantaged Business Enterprise (“DBE”) programs, have become increasingly attractive to contractors looking for ways to mitigate the impact of the dismal state of the local construction market. 

 
Contractors should be aware that governing agencies, including the SBA, have increased their investigative and enforcement efforts in an effort to combat “procurement fraud.” Therefore, unless you are aware of, and can strictly comply with, all of the requirements of the particular set-aside program, you will be well served to steer clear. 

 
According to recent Senate testimony from the SBA Inspector General, the SBA is committed “to prosecute those who make false statements regarding their eligibility for contracts set aside for small or disadvantaged business and those who fraudulently use front companies to divert profits from set-aside contracts awarded to eligible businesses towards large and non-disadvantaged companies.”

Several recent high-profile cases illustrate the severe ramifications of failing to comply with the rules and regulations of a particular set-aside program. 

 
On March 31, 2011, Skanska USA Civil Northeast, Inc. agreed to pay $19.6 million to resolve criminal allegations that it defrauded the government by failing to properly use DBE subcontractors. Prosecutors alleged that Skanska “effectively self-performed the work … and helped create the appearance that [its DBE subcontractor] had done commercially useful work on the project.” The scheme allowed Skanska to meet its DBE requirements on several projects.

The DBE subcontractor referred to in the Skanska case was Environmental Energy Associates. A grand jury recently indicted the President and Vice President of EEA on fraud and conspiracy charges. The indictment alleges that EEA (1) entered into lucrative subcontracts with Skanska to perform an array of work, (2) knew that it was not capable of performing the work, (3) arranged to have either Skanska or non-DBE third parties perform the work, and (4) falsely submitted payment requests to Skanska for work that EEA never actually performed, for which Skanska then sought and received DBE credit for. The case is still pending.

In November 2010, Schiavone Construction Co., a unit of Dragados-USA, agreed to pay $22.4 million to settle a federal investigation into its practice of submitting reports representing that it was using certified minority, women and disadvantaged business enterprises on public projects. 

 
In October 2010, CSI Engineering and CSI Design Build, two Maryland firms and their president, agreed to pay $200,000 to settle a federal investigation into their work on several HUBZone projects. The HUBZone program generally requires that the contractor maintain its principal office in the designated “underutilized” area and employ 35% of their workforce from there. CSI represented that it satisfied these requirements but clearly did not. 

Also in October 2010, the SBA suspended GTSI Corp., a prominent federal contractor, from performing federal work based on allegations that “GTSI was an active participant in a scheme that resulted in contracts set aside for small businesses being awarded to ineligible contractors.” The government alleged that GTSI entered into arrangements with its partners under which GTSI would perform all of the work on the contract, where the rules require that the disadvantaged partner actually perform parts of the work. The investigation is continuing. In order to remove the suspension pending completion of the investigation, GTSI agreed to remove its CEO and general counsel and turn over internal documents regarding its contracting practices.

Before participating in a set-aside program of any type, Contractors should make certain that they are aware of, and in compliance with, all of the unique requirements of the particular program and agency. This process often involves communicating with the agency’s liaison to confirm compliance. If you are still uncertain, you should contact your attorney who can investigate the statutory requirements and also attempt to identify case examples with similar facts. 

 
As the above examples reveal, failing to comply with the rules can be very costly, so beware. 

If you have any questions about this article, feel free to contact the author at as@salamiradmorrow.com.



THING YOU NEED TO KNOW BEFORE JUMPING INTO THE SET-ASIDE MARKET

Released on: September 8, 2014 | Category: News

Preferential contracting programs such as the Small Business Administration’s 8(a), HUBZone, Service-Disabled Veteran-Owned and Women-Owned Business and various Disadvantaged Business Enterprise (“DBE”) programs, have become increasingly attractive to contractors looking for ways to mitigate the impact of the dismal state of the local construction market. 

 
Contractors should be aware that governing agencies, including the SBA, have increased their investigative and enforcement efforts in an effort to combat “procurement fraud.” Therefore, unless you are aware of, and can strictly comply with, all of the requirements of the particular set-aside program, you will be well served to steer clear. 

 
According to recent Senate testimony from the SBA Inspector General, the SBA is committed “to prosecute those who make false statements regarding their eligibility for contracts set aside for small or disadvantaged business and those who fraudulently use front companies to divert profits from set-aside contracts awarded to eligible businesses towards large and non-disadvantaged companies.”

Several recent high-profile cases illustrate the severe ramifications of failing to comply with the rules and regulations of a particular set-aside program. 

 
On March 31, 2011, Skanska USA Civil Northeast, Inc. agreed to pay $19.6 million to resolve criminal allegations that it defrauded the government by failing to properly use DBE subcontractors. Prosecutors alleged that Skanska “effectively self-performed the work … and helped create the appearance that [its DBE subcontractor] had done commercially useful work on the project.” The scheme allowed Skanska to meet its DBE requirements on several projects.

The DBE subcontractor referred to in the Skanska case was Environmental Energy Associates. A grand jury recently indicted the President and Vice President of EEA on fraud and conspiracy charges. The indictment alleges that EEA (1) entered into lucrative subcontracts with Skanska to perform an array of work, (2) knew that it was not capable of performing the work, (3) arranged to have either Skanska or non-DBE third parties perform the work, and (4) falsely submitted payment requests to Skanska for work that EEA never actually performed, for which Skanska then sought and received DBE credit for. The case is still pending.

In November 2010, Schiavone Construction Co., a unit of Dragados-USA, agreed to pay $22.4 million to settle a federal investigation into its practice of submitting reports representing that it was using certified minority, women and disadvantaged business enterprises on public projects. 

 
In October 2010, CSI Engineering and CSI Design Build, two Maryland firms and their president, agreed to pay $200,000 to settle a federal investigation into their work on several HUBZone projects. The HUBZone program generally requires that the contractor maintain its principal office in the designated “underutilized” area and employ 35% of their workforce from there. CSI represented that it satisfied these requirements but clearly did not. 

Also in October 2010, the SBA suspended GTSI Corp., a prominent federal contractor, from performing federal work based on allegations that “GTSI was an active participant in a scheme that resulted in contracts set aside for small businesses being awarded to ineligible contractors.” The government alleged that GTSI entered into arrangements with its partners under which GTSI would perform all of the work on the contract, where the rules require that the disadvantaged partner actually perform parts of the work. The investigation is continuing. In order to remove the suspension pending completion of the investigation, GTSI agreed to remove its CEO and general counsel and turn over internal documents regarding its contracting practices.

Before participating in a set-aside program of any type, Contractors should make certain that they are aware of, and in compliance with, all of the unique requirements of the particular program and agency. This process often involves communicating with the agency’s liaison to confirm compliance. If you are still uncertain, you should contact your attorney who can investigate the statutory requirements and also attempt to identify case examples with similar facts. 

 
As the above examples reveal, failing to comply with the rules can be very costly, so beware. 

If you have any questions about this article, feel free to contact the author at as@salamiradmorrow.com.



https://www.dropbox.com/s/hsiilmyx2hmfi6o/Article%20from%20California%20Constructor%20-%20Contractors%20Beware.pdf?dl=0


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