As readers of this blog know, fraud involving the Department of Transportation’s disadvantage business enterprise regulations is a hot topic in the construction industry. One form of DBE fraud involves a front scheme, whereby a certified DBE is not actually owned, operated, and controlled by an disadvantaged individual. Unfortunately, this type of scheme is not limited to the DBE program. Fraud involving the Veteran Owned Small Business program is also increasing.
Under the federal government’s Veteran Owned and Service Disabled Veteran Owned Small Business programs, federal agencies are authorized to set aside the award of contracts for only VOSB and SDVOSB entities. To be eligible for certification as a VOSB or SDVOSB, a veteran or a service disabled veteran must own 51% or more of the entity, must manage the daily operations of the firm, and hold the highest position in the firm. The certification rules are very similar to those for disadvantaged business enterprises.
Because under the VOSB and SDVOSB programs procurement is limited to those firms, the opportunity exists to obtain lucrative contracts where otherwise the firm may not be able to compete. As the number of contracts procured under the program has increased, so has fraud related to that procurement. Nefarious firms have sought to take advantage of the program by falsely claiming to be owned and controlled by a veteran. Accordingly, authorities are taken notice and have started to crack down. Recently, the Department of Justice announced that the owner of a fraudulent VOSB had plead guilty to a scheme to falsely claim VOSB status in order to obtain federal contracts.
This indictment is important for two reasons. First, it is a reminder to those that might try to take advantage of the VOSB and SDVOSB program that federal prosecutors are watching and the penalties are severe. Second, for those that work with VOSB and DVOSB subcontractors it is important to investigate any claims of fraud. As I have discussed before, under the False Claims Act, contractors can be subject to significant civil and criminal liability for turning a blind eye to fraud on their projects.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
