Supplemental Conditions

Failing to Understand DBE Regs Leads to Bid Rejection

Posted in Disadvantage Business Enterprises (DBE)

In an earlier post, I talked about bid challenges and rejections being one of the “hidden dangers” of failing to understand and follow DBE regulations.  I explained how strict minority set asides or quotas are almost always unconstitutional.  In fact, the DOT DBE regulations explicitly state that the DBE goals are not quotas. Rather, they are goals that contractors must use “good-faith efforts” to achieve. A State Transportation agency cannot reject a bid because it fails to include a commitment to subcontract work that meets or exceeds the stated DBE goal. However, for its bid to be accepted, the contractor must be able to demonstrate “good faith efforts” in attempting to meet the stated DBE contracting goal.

A Maryland case shows how one contractors lack of understanding of DBE regulations likely resulted in it losing an airport contract.  (For a detailed explanation of the case visit livingstonprocurment.com)  In that case, the Maryland Aviation Administration issued an Invitation for Bids for fence installation and repair at two airports. The Invitation for Bids stated a DBE participation goal of 15%.

Fence Connection, Inc. was the apparent low-bidder and stated that 25% of its subcontracted work would be performed by a single DBE subcontractor.  However, the because the DBE was a supplier only 60% of the value of the work subcontracted to the DBE could be counted towards Fence Connection, Inc.’s DBE goal.  MAA rejected the bid believing that it was not possible for Fence Connection to meet the stated DBE goal using the fuel supplier because Fence Connection could not accurately state the amount of fuel it would purchase from the DBE supplier.

Fence Connection appealed to the Maryland Board of Contract Appeals.  The Board of Appeals affirmed the MAA’s rejection of the bid Fence Connection “could not accurate calculate how much fuel it was use on the contract.”

Unfortunately for Fence Connection, its apparent lack of understanding of DBE regulations caused it to lose the bid.  How could Fence Connection saved its bid?  First, even if it could not exactly calculate the amount of fuel it intended to purchased it could have come close based upon past fuel usage and perhaps expert testimony.

Second, outside of that calculation Fence Connection could still have come away with the contract if it demonstrated it used “good-faith efforts” to meet the stated DBE 15% goal and the DBE fuel supplier was all was the only reasonable candidate for subcontracting.  In order to do that, Fence Connection would need to have documented aggressive efforts to find DBE subcontractors to perform 15% of the work.  If it did so, Fence Connection should have been awarded the contract even if its DBE goal came in below 15%.  In other words, it could have argued that because it demonstrated good-faith efforts it is irrelevant if it met the 15% goal because under DBE regulations its bid cannot be rejected solely for failing to meet the goal.

5 Ways to Recover Your Attorney’s Fees When Litigating With the Government

Posted in Construction Law

Litigating a case against the government is an intimidating task.  The government has virtually unlimited resources at its disposal to wage its case.  Each side must bear it’s on costs of litigation, which means you must pay your attorney while the government attorneys are already paid by the taxpayers. However, in certain cases involving the government an award of attorneys is available to successful litigants, which can level the playing field.  Here is a look at five areas where successful parties in litigation involving the government can recover attorney’s fees from the government.

1.         Civil Rights Actions.

            When the local, state, or federal government violates an individual’s or corporate entity’s constitutional rights, they can sue the government for damages under 42 U.S.C. § 1983.  A claim under Section 1983 can arise when a party’s property is taken without due process of law, its free speech rights are infringed, or it is subject to a warrantless search and seizure.  If a party is successful in its litigation and the government is found liable for violating its constitutional rights, 42 U.S.C. § 1988 authorizes the court to award the party reasonable attorneys fees and costs.

2.         Equal Access to Justice Act.

            The Equal Access to Justice Act (EAJA) provides for an award of attorneys fees and costs to a party that prevails in litigation against the federal government or a federal government agency.  Unlike in attorney’s fees under 42 U.S.C. § 1983, under the EAJA, an award of attorneys fees and costs is mandatory.  However, the EAJA applies only to cases involving the federal government or a federal government agency.  Conversely, claims arising under 42 U.S.C. § 1983 can involve a local or state government.

            In order to receive an award of attorneys fees and costs, a party must meet four criteria:

            (1)        they must be a “prevailing party” in its suit against the government;

            (2)        the government’s position must not be “substantially justified;”

            (3)        there are no “special circumstances” that would make the award unjust;

            (4)        the application must be made within thirty (30) days of final judgment;

            Importantly, to be deemed a prevailing party entitled to attorneys fees, an applicant need not win on every claim it brings.  Rather, the Supreme Court has stated that a prevailing party is “one who has succeeded on any significant claim affording it some right to relief.”  The form of relief can be a judgment on the merits or a preliminary injunction.

            The government bears the burden of proof in demonstrating that its position was had substantial justification.  Substantial justification is “justification to a degree that could satisfy a reasonable person.”  The Supreme Court has “interpreted the term substantial justification as describing a position that has a reasonable basis both in law and fact.”

            Some examples of cases involving construction companies where the government failed to prove substantial justification for its position include:

  • Successful bid protests;
  • Successful payment claims;
  • Successful appeals of denial of SBA, DVOSB, and VOSB certification;
  • Successful defense of agency actions (OSHA, DOL, OFCCP)

            The downside to attorney’s fees claims under the EAJA is that, typically, the award of attorneys fees is capped at $125 per hour, unless the court decides otherwise.  Furthermore, individuals with a net worth of more than $2,000,000 or entities with a net worth of more than $7,000,000 and more than 500 employees are not eligible for an award of attorney’s fees under the EAJA.

3.         GAO Bid Protests.

Disappointed bidders on a contract being let by the federal government or government agency have the ability to challenge the contract award by filing a bid protest with the Government Accountability Office (“GAO”).  If GAO determines that a solicitation, proposed award, or award does not comply with statute or regulation, it may recommend that the agency pay the protester the costs of:

(1)   Filing and pursuing the protest, including attorneys’ fees and consultant and expert witness fees; and

(2) Bid and proposal preparation.

4.         Eminent Domain.

            Eminent domain is the process by which the government can acquire private property for public use.  If a private owner is successful in defending a claim by the federal government that a property should be acquired by eminent domain or if the federal government abandons its claim for the property then an award of the owner’s attorney’s fees is mandatory.  Local and State governments can also acquire property through eminent domain.  The rules vary from by State.  However, many States contain provisions in their eminent domain laws for compensating private owner’s attorney’s fees.

            Inverse condemnation is the legal term used to refer to when the government takes an action that impacts the economic value of a private property.  The action can be a physical one, such as where the access to private property is effected, or regulatory, such as where a government regulation impacts the ability for an owner to use his land.  The latter is sometimes referred to as a “regulatory taking.”  If the federal government has engaged in inverse condemnation and a private property owner sues the federal government and is successful, then under 42 U.S.C. § 4654(c), an award of attorney’s fees is mandatory.

 5.         Civil Asset Forfeiture.

            Under civil asset forfeiture laws, the federal government is empowered to seize property if it believes the property was obtained by or used to further committing a crime.  This is true even if the owner of the property is never charged with any wrongdoing.  As can be imagined, civil asset forfeiture laws are controversial.  However, private property owner’s challenging a civil forfeiture proceeding under federal law who are successful are entitled to a mandatory award of attorney’s fees.

For more information about recovering attorneys fees and costs from the government, visit our Economic and Individual Liberty Program at http://zimolonglaw.com/practice-areas-2/economic-and-individual-liberty. 

Performing Work in Philadelphia? Several New Laws Impact the Construction Industry

Posted in Construction Law

On January 1, 2014, a series of changes to the City of Philadelphia’s licensing laws for construction contractors went into effect.  Moreover, on February 6, 2014 and May 14, 2014, Mayor Nutter signed additional changes into law, which will become effective in 2015.  Your immediate attention to these new rules is required because the penalties for non-compliance have increased significantly.

1.         Who is subject to the new laws?

The new laws require all general contractors, including owners that act as general contractors, and subcontractors of any tier that perform more than $500 of work to become licensed.

2.         Who is exempt from the new rules?

 The new laws grant an exemption to the following:

  • owners performing improvements to owner occupied properties or to properties they intend to occupy;
  • engineers and architects;
  • government employees performing work in their capacity as government employees;
  • contractors and subcontractors already licensed by the City; and
  • contractors and subcontractors performing less than $500 of work.

3.         What are the requirements for a license?

Contractors and subcontractors must complete an application prepared by the Department of Licenses and Inspections and pay a $100 fee.  Contractors and subcontractors must renew their license annually.  This is a change from the previous law that required renewal every three (3) years.

To obtain a license, contractors and subcontractors must:

  • obtain a commercial activity license and tax identification number (business privilege number) from the City.  This must be done before applying for a license.
  • certify under penalty of law that they (a) have complied with all City tax obligations, (b) are financial solvent, (c) are not debarred by any public body or government agency, and (d) are in compliance with all applicable laws of the Commonwealth relating to operation of their business.
  • provide proof that the new law’s insurance requirements are met (see point 4 below for information about insurance requirements); and
  • provide proof that one or more supervisory employees has completed OSHA 30 training within the last five (5) years[1].

4.         What are the new insurance requirements?

The new law has strict insurance requirements.  The new law requires that contractors and subcontractors maintain a minimum level of insurance. Proof that these minimum requirements are maintained is a prerequisite to obtaining a license.  Contractors and subcontractors must maintain the following:

  • workers compensation insurance at statutory limits (which is already required under state law);
  • a CGL policy with minimum coverage of $500,000 per occurrence;
  • products and completed operations coverage with minimum coverage of $500,000 per occurrence; and
  • motor vehicle liability insurance with minimum covered of $300,000 per occurrence.

Certificates of insurance must be submitted with the application.  Importantly, the certificate of insurance must: (a) describe the type of work the contractor and subcontractor performs, (b) the name and telephone number of the contractor’s insurance broker or agent, and (c) name the City of Philadelphia as an additional insured[2]

5.         What are the post-licensing requirements?

 The new law imposes several conditions on contractors and subcontractors post-licensing.  Contractors and subcontractors shall:

  • update the Department of Licenses and Inspections on changes to information supplied on their application;
  • secure all permits prior to beginning construction;
  • display their license number on all advertising, stationery, at their main place of business, at their job sites, on proposals and contracts, and vehicles;

(The numbers on vehicles must be at least two inches in height.  It is not clear what qualifies as displaying the license number at a place of business and at a job site.)

  • maintain complete financial and construction records (including plans) for each job performed, for four years, after the completion of the job; and
  • provide certain information to the Department of Licenses and Inspections regarding their subcontractors.

6.         What conduct is prohibited?

The new law specifically states that the following are prohibited:

  • performing work without a permit;
  • deviating from or disregarding in any material respect the plans and specifications approved by the Department of Licenses and Inspection, unless the change is approved by the Department[3];
  • assigning or transferring a permit to another contractor;
  • hiring an unlicensed contractor or subcontractor.

The law is clear that the prohibition on the hiring of unlicensed contractors and subcontractors applies to project owners and developers.

7.         What are the special notice requirements that apply to “prime contractors”?

The new law defines “prime contractor” as “any contractor that is identified on a permit application as the contractor responsible for the construction authorized by the permit.”  Therefore, the definition applies to traditional general contractors but also specialty trades that are required to pull permits for their respective trade, such as electrical and plumbing subcontractors.

The new law requires prime contractors to submit to the Department of Licenses and Inspection in writing within three (3) days of beginning work on the project the following:

  • the address of the project;
  • the prime contractor’s name, business address, and license number;
  • a list of all subcontractors of any tier used on the project with their respective license numbers;
  • proof that each contractor and subcontractor has all other licenses required by the Philadelphia Code (business privilege, tax, ect.);
  • the name of the property owner; and
  • such other information as the Department of Licenses and Inspections requires.

Furthermore, the new law requires the prime contractor to post this information at the project site in a place that is clearly visible to public view.  The Department of Licenses and Inspections is currently promulgating a uniform standard for signage that must be displayed and that contains the information required to be displayed.  What is unclear is whether there will be a sign for each “prime contractor” or only one sign that lists the name of the general contractor and the major trade subcontractors.

8.         What are the OSHA training requirements?

In addition to the OSHA 30 hour training for supervisory employees required in order to obtain a license, beginning in 2015 all construction workers regardless of position performing work on a project located in Philadelphia shall have completed OSHA 10 training or better and must carry proof that they have completed this training.

9.         What are the penalties for violating the new rules?

Contractors and subcontractors found to have violated the new rules can have their licenses revoked for a period of one (1) year and they shall be prohibited from pulling any permits during that one (1) year period.

Moreover, the law authorizes the imposition of fines and imprisonment of up to ninety (90) days for violators.

Starting in 2015, the Philadelphia Fire Department shall have concurrent enforcement with the Department of Licenses and Inspections to issue stop work orders in cases imposing an immediate threat to life or property.

 10.       What are the whistleblower provisions of the new rules?

One of the most significant changes in the law concerns the addition of a provision authorizing private individuals to bring a cause of action against a contractor or subcontractor who has allegedly violated the licensing rules and requirements.  Similar to the federal False Claims Act, the new law incentivizes citizens to bring complaints by permitting the Court to award the citizen up to thirty percent (30%) of any amount recovered on behalf of the City.  As an added incentive, the new law also permits the private plaintiff to be awarded attorneys fees and costs incurred in bringing the action.


[1] The OSHA training requirement was added to the law in a bill signed by Mayor Nutter on May 14, 2014.  However, the OSHA training requirements do not become effective until November 2015.

[2] Contractors should discuss the additional insured language with their brokers because it may result in an increased premium.

[3] It is unclear what impact, if any, this will have on scope related changes that happen in the field.

Why GAO Bid Protests Are Worth It

Posted in Bid Protests and Disputes

Since 2006, the number of bid protest filed with the Government Accountability Office (“GAO”) has nearly doubled from approximately 1,300 protest filed in 2006 to over 2,400 filed in 2012.

 Many, including the former head of the Office of Federal Procurement Policy, believe bid protests are worth it. Among chief factors that lead many to believe that a protests are warranted:

  1.  The relatively low cost to file a protest with Government Accountability Office (GAO);
  2. An over 40% chance of that the protester will obtain some form of relief; and
  3. The potential to receive a partial or full award of your attorneys fees costs incurred in bringing the protest.

Where: Disappointed bidders on a contract being let by a federal government agency have a choice of filing a bid protest in four different places: (1) the agency giving the award; (2) the GAO; (3) the Court of Federal Claims; and (4) the disappointed bidders local federal district court.

Each forum has it pros and cons. However, the GAO is by far the most popular forum for filing a bid protest on a federal contract award because of the detailed rules for hearing and the speed at which the matter is disposed of. Indeed, the GAO will rule on a bid protest within 100 days of a protest being filed with it. Moreover, with few exceptions, a claim filed with the GAO results in an automatic stay of award of the contract subject to the dispute.

When: A post-award bid protest must be filed with the GAO within ten (10) days. While there is no set time frame for filing a bid protest with either the Court of Federal Claims or a local federal district court, because bid protest filed there seek preliminary injunctive relief, they should be filed as soon as possible. In fact, any delay in filing a bid protest with the federal court may result in the claim being denied.

Snatching Defeat from the Jaws of Victory

Posted in Bid Protests and Disputes, Public Bidding

Sports fans are familiar with the scenario.  A team stands only seconds away from victory. It is so close many are already celebrating.  Suddenly, fate intervenes and a ball bounces off a glove, a half court shot swishes through the net, or a receiver catches a heaved touchdown pass.   That is what the losing team calls: snatching defeat from the jaws of victory.

Snatching defeat from the jaws of victory could also be used to describe the circumstances of a recently decided Pennsylvania Commonwealth Court decision in Allan A. Myers, LP v. Montgomery County.  The case involved the award of a county road paving contract.  Allan A. Myers was the apparent low bidder and winner of the contract.  In fact,  the County Commissioners passed a resolution announcing that Myers was the low bidder and awarded the contract to it.

However, before the paving contract could be formerly signed, the County entertained a bid protest from a disappointed bidder.  As a result of the protest, the County Commissioners adopted another resolution.  This one rescinded the prior resolution awarding the contract to Myers and awarding the contract now to the disgruntled bidder.

Not surprisingly, litigation ensued.  The trial court dismissed Myers’ case stating that as a matter of law “the mere act of awarding a public contract normally creates no binding obligation on the awarding entity without the proper contracting authorities going further and entering into and executing the contract.”

Myers appealed and argued that, under basic public contract principles, an enforceable contract existed when the County awarded the contract to Myers in the resolution.  The Commonwealth Court disagreed and affirmed the trial court’s dismissal of Myers’ action.  The Commonwealth Court explained that “where a statute prescribes the formal mode of making public contracts it must be observed, otherwise they cannot be enforced against the government agency involved.”

Looking to the statute governing the award of the paving contract, the Commonwealth Court reasoned that the language indicated that the Legislature intended that all contract be executed in order to be enforceable.

The take away.  Before you start celebrating a bid award, if the statute governing the award of your contract requires it to be executed to be enforceable, bird dog the government agency to get you that executed contract.

Minor Ambiguity in Bid Spec Leads to Successful Bid Challenge

Posted in Bid Protests and Disputes

A recent Pennsylvania Commonwealth Court decision underscores how even a minor bid specification ambiguity can lead to a significant bid challenge.

In Greenstar Pittsburgh LLC v. Allegheny County, the Commonwealth Court considered whether the following section of a bid specification was ambiguous, thereby creating an uneven bidding playing field:

“The Contractor’s facility shall be located within a fifteen (15) mile radius from the City’s Department of Public Works … located at 30th and A.V.R.R.”

In the case, Greenstar, a disappointed bidder and individual taxpayer brought suit to enjoin the award of a contract for the processing of recycling materials.  Greenstar challenged the award of the contract to PRS, the apparent lowest responsible bidder, on the grounds that three sections of the bid specifications were ambiguous and gave PRS an unfair advantage in the bidding process.

In part, Greenstar claimed the term “facility” was open to two reasonable interpretations.  It claimed that facility could mean its home office or a processing site.  The trial court agreed and enjoined the award of the contract to PRS.  On appeal, the Commonwealth Court affirmed and the contract award remained enjoined.

The Commonwealth Court explained that “if a provision in bidding specifications denies the public the benefit of a fair and just competitive process by which the public authority can select the lowest responsible responsive bidder due to its ambiguity, the only remedy is to enjoin performance of the contract between the successful bidder and the public authority.”  The rationale underlying this principle is that “fairness lies at the heart of the bidding process, and all bidders must be confronted with the same requirements and be given the same fair opportunity to bid in free competition with each other.”

The definition of the term “facility” is not one that most bidders would likely seize on in attacking bid award.  Usually, contractors focus on ambiguities involving some portion of the bid itself, like a unit price or other line item.  Greenstar raises the question as to whether disappointed bidders should look elsewhere in the bid specification to challenge an award.  Surely, in every bid specification there exists one, if not several instances, of minor ambiguities that a disappointed bidder could use to challenge a bid award.

The lesson:  if you want to challenge a bid, look beyond the obvious ambiguities.

 

 

 

Greenstar Pittsburgh, LLC v. Allegheny Cnty., 1890 C.D. 2012, 2014 WL 346613 (Pa. Commw. Ct. Jan. 30, 2014)

Double Breasted Firms Sometimes Pay a Huge Price

Posted in Unions

An article on the website Real Estate Weekly entitled “Construction unions going after alter-ego contractors as profits shrink” recently grabbed my attention.  The article recounts the  familiar tale of a union shop contractor that was forced to pay $6 million for violating its collective bargaining agreement with a Carpenters Local.

The Carpenters accused a New York firm, River Avenue Contracting of creating alter ego companies and using them to hire non-union workers.  River Avenue created RNC Industries and Extreme Concrete Corp., but allegedly kept the same employees and address.  

Therein lies the problem.

As we have written about before, double breasted operations, even if they share a common owner, are completely legal.  The issue that contractors, like River Avenue Contracting, run into in establishing a non-union entity is not common ownership, its common everything else.  Common ownership is but one factor in a series of factors the Court will use to determine whether the non-union entity is an “alter ego” of the union firm.  But, it is hardly dispositive.  More important factors are common employees, common management, common office space, and common equipment.

Unfortunately, for River Avenue Contracting, and many firms like it, they fail to keep the two enterprises truly separate, which is frankly not that difficult.  If River Avenue Contracting’s owners, established a new non-union firm, that had a different management team, different non-union member employees, a different location, and bid different types of work (say residential instead of commercial), then the union would have had an uphill battle with its case and it is unlikely River Avenue would have agreed to pay the $6 million amount.

 

 

 

Yet Another False Claims Act Case Involving the DOT’s DBE Program

Posted in Disadvantage Business Enterprises (DBE)

Readers of this blog know that I have been warning that actions brought under the False Claims Act against contractors violating DBE programs have been increasing.  Last week, I wrote about a False Claims Act case brought by a project manager, employed by a third party subcontractor, that resulted in a $2 million award to him and over $10 million award to the government.

On the heels of that case, is news out of the Southern District of New York of a False Claims Act case brought by the U.S. Attorney for the Southern District of New York, against Moretrench American Corporation, who allegedly used a “pass through” entity to meet its DBE subcontracting goals on the World Trade Center Project.  (Readers of this blog also know that the Southern District of New York is a hot bed of DBE fraud prosecutions, including several high profile cases in the last few years.)

According to the complaint, Moretrench made the common mistake of hiring a certified DBE that performed no commercially useful function.  Instead, Moretrench placed is employees on the DBE’s payroll and had those employees perform work using Moretrench equipment.  Moretrench then submitted payment applications certifying that the DBE performed work for Moretrench.  The complaint seeks only money damages and raises claims under the civil portion of the False Claims Act.  Therefore, Moretrench and its executives are lucky that they are not facing criminal mail and wire fraud charges, which the DOJ could have easily brought given the facts alleged.  (However, the DOJ can always bring additional charges later and we will see what happens.)

Your Construction Company Is Not In Compliance With This Regulation

Posted in Public Contracts

The Department of Labor maintains a set of regulations that (a) are the basis for a large increase in enforcement activity, (b) apply to virtual all transportation contractors and subcontractors, and (c) most contractors and subcontractors are not complying with. Those regulations are found at 41 C.F.R. 60-4.1 and are the implementing regulations for Executive Order 11246, an LBJ era order seeking to end discriminatory hiring practices on federal construction projects.  These regulations are sometimes referred to as Affirmative Action regulations.

Why You Should Be Concerned.

The DOL’s Affirmative Action regulations apply to all contractors and subcontractors with a contract value exceeding $10,000 on an federally funded project or project receiving federal funding assistance.  This is critical because many contractors make several false assumptions about the applicability of the Affirmative Action regulations to them.  First, the regulations apply to any contractor or subcontractor working on a federal or federally assisted construction project and not just to those contractors maintaining a direct contractual relationship with the government agency letting the work.  Second, unlike many federal regulations, there is no employee threshold for the regulations to apply because it applies to any contractor or subcontractor holding a contract or subcontract in excess of $10,000 is subject to the regulations regardless of company size.  Third, it applies to any project receiving some sort of federal funding assistance, not just those solely funded by the federal government.  What this means is that it is hard to envision a public construction project that is not subject to the regulations.

Contractors should be concerned because after years of little enforcement activity the DOL’s Office of Federal Contract Compliance Programs is rapidly stepping up enforcement activities.  The regulations permit the DOL to conduct an on-site audit of your firm’s compliance with the regulations and permits the DOL to access a wide variety of records, including payment and payroll records for non-public private projects.  Moreover, unlike an OSHA investigation, this can all be done without a warrant.

What the Regulations Require You to Do.

Generally, the Regulations require you to use “good-faith efforts” to increase minority and female employment within your firm.  The Regulations set forth specific requirements that firms must do to help achieve this goal.  For example, the Regulations require you to keep a record of all female and minority applicants, to actively recruit female and minority employees through various community organizations, and to create and maintain a equal employment opportunity policy within your firm.  The OFCCP publishes a helpful “Technical Assistance Guide for Federal Construction Contractors,” which goes into to much greater detail on the requirements of the Regulations and should be required reading for contractors.  It can be found HERE.

Where Problems Occur.

First and foremost, problems occur because most contractors and subcontractors falsely assume the regulations do not apply to them so they are left completely flatfooted when they receive a letter from the DOL advising that them that they have been selected for EEO audit.

Second, while no doubt laudable, the Regulations (like many federal regulations) sometimes do not consider the real world.  For example, the Regulations require that contractors and subcontractors “provide written notification to minority and female recruitment sources and to community organizations when the Contractor or its unions have employment opportunities available, and maintain a record of the organization’s responses.”  For contractors signed to collective bargaining agreements, such an effort amounts to little more than a waste of time because all hiring must go through the respective union hall.  The regulations also require firms to develop “on-the-job training opportunities’ targeted females and minorities.  Again, this becomes cumbersome, at best, when firms hire through union halls that maintain their own apprentice and training programs.

The Consequence of Non-Compliance.

Beside the cost and expense of a lengthy DOL audit, non-compliant contractors run the risk of fines and sanctions, including debarment, for failing to follow the Regulations.

Because enforcement efforts are increasing, contractor and subcontractors working on public projects should become familiar with the Regulations so that they are fully prepared to respond to a DOL audit.

Whistleblowing Project Manger Awarded $2 Million in DBE Fraud Case

Posted in Disadvantage Business Enterprises (DBE)

While criminal prosecutions involving construction company executives violating federal, state, and local disadvantaged business enterprise programs (DBE) rightfully receive most of the attention, of equal or greater concern to contractors should be whistleblower lawsuits brought under the False Claims Act for violations of DBE regulations.  As I talked about in my recent DBE compliance webinar (available for free by clicking HERE) the False Claims Act makes bounty hunters out of disgruntled former employees because the Act entitles the whistleblower to up to 30% of the amount recovered on behalf of the government.

On May 1, 2014, the FBI announced a $12 million settlement against Chicago based McHugh Construction for violations of the DOT DBE program and similar Illinois and Chicago DBE programs.  What is important about the case, is that it was filed under the False Claims Act by a project manager of a subcontractor to McHugh.  The case was then picked up — as is often the case under the False Claims Act – by the Department of Justice.  For his effort in making the initial filing the project manager will receive in excess of $2 million.  Not a bad pay day for the little work that he did in filing the lawsuit.

Now more than ever, contractors cannot ignore their DBE compliance duties.  Like with any other criminal activity, the Department of Justice cannot prosecute every case either because they lack the resources or they decline prosecution because of the size of the matter.  However, under the False Claims Act, the hundreds of people working on a construction project have incentive to sue contractors for violations of DBE rules.

Plaintiff’s attorney are aggressively pursuing whistleblower claims against contractors that violate the DBE regulations.  Moreover, many terminated and disgruntled employees contact an attorney about potentially suing their former employer.  Usually that inquiry involves whether they have a claims for some form of discrimination.  Many are disappointed to learn they do not, however, you can be sure that the attorney they speak with will ask the potential client about any potential False Claims Act claims.  Even when you win a whistleblower action you lose because you are forced to spend significant money defending the action, which is typically not covered by insurance.

Whistleblower actions, yet another reason to make sure your firm is complying with DBE regulations.