A few weeks ago, I posted about a spat of DBE fraud cases that the Department of Justice announced in June. That post mentioned the trend among prosecutors to use the civil false claims act to combat DBE fraud. Yesterday, the United States Attorney for the Northern District of New York announced yet another DBE fraud case involving the civil false claims act. A copy of the DOJ’s press release can be found here.
The case involves the HD Supply Waterworks, who the DOJ claims is the nation’s largest supplier of water, sewer, storm drain, and fire protection products. According to the press release, Waterworks arranged to have a certified DBE act as a pass through for prime contractors working on DOT and EPA projects. (As I have blogged about previously, the classic DBE pass through scheme involves a prime contractor utilizing a certified DBE on paper only. The DBE does not actually perform any work – or “commercially useful function” in DBE regulation parlance. Instead, the work is actually performed by a non-DBE firm. For allowing its certification to be used, the certified DBE receives a commission from the non-DBE firm or the prime contractor.) Waterworks agreed to a nearly $5,000,000 settlement with the government. However, Waterworks may have gotten off easy because, as we have seen in other cases, many DBE fraud cases involve jail time for construction company executives.
Interestingly, the press release makes clear that the prime contractors were complicit in the scheme. This would expose those prime contractors to criminal and civil penalties and disbarment from bidding on federal projects. We will have to see if additional indictments and guilt pleas follow.