What Happens When You Do Not Follow DBE Rules?

You end up paying $1.15 million to the Justice Department to settle claims that you violated the False Claims Act.  As reported by ENR, Caddell Construction of Montgomery, AL, agreed to pay the Justice Department $1.15 million to settle charges that it violated the False Claims Act by —  you guessed it — committing DBE fraud.  According to the story:

The company agreed to pay $1,150,000 to settle allegations that it violated the False Claims Act by falsely reporting to the Army Corps of Engineers that it hired and mentored a Native American-owned company to work on Fort Bragg and Fort Campbell projects.

As is typical in DBE fraud cases, the Native American firm that Caddell certified as a DBE was merely a “pass through” entity who was performing no commercially useful function.

Perhaps as significant as the fine, is that the charges also led to the indictment of two Caddell Construction executives on federal fraud charges.  This story underscores how serious firms must take participation in government DBE programs.  Fines are bad, jail time is worse.

DBE/MBE Goals Threaten to Make Complete Mess of Project

Here is one I have not seen before, a project that threatens to get derailed because the general contractor proactively included M/WBE goals in its contract.  The story reported in the Baltimore Business Journal  involves M/WBE hiring goals in Whiting-Turner’s contract to build the Horseshoe Casino in Baltimore.  According to the story, Whiting Turner, the project’s general contractor, preemptively set M/WBE participation goals before the Maryland Lottery and Gaming Control Commission, the state agency in charge of the project, set its official M/WBE hiring goals.  Whiting-Turner established a 25% MBE goal and a 2% WBE goal.  However, the Maryland Minority Contractors Association believes that goal is arbitrary and too low and is threaten to bring suit to prevent the project from proceeding until the state sets its official hiring goals for the project.  Interestingly, the Maryland Governors office concedes that state’s MBE regulations apply to the project.

There are several interesting aspects of this story.  First, there is the issue of standing.  As a threshold matter, the MCA must demonstrate that it has a protected right or interest that the Gaming Commission actions has harmed.  However, the MCA has no “right” to have a certain amount of work set aside to its members.  In fact, strict quotas and set aside are invalid.

Second, if Whiting-Turner already has a contract with the Gaming Commission with W/MBE hiring goals that the Commission accepted, the Commission would be in a tough legal position to demand that Whiting -Turner change those goals.  Whiting-Turner would be on sound legal ground to refuse any change to the W/MBE goals in its contract with the Commission.

Finally, the legal theory that the Minority Contractors Association is positing to challenge the goals is interesting.  The MCA claims that the State must establish hiring goals based upon a disparity study and is apparently relying upon the Maryland District Court’s holding in Associated Util. Contractors of Maryland, Inc. v. Mayor & City Council of Baltimore, 83 F. Supp. 2d 613, 622 (D. Md. 2000).  What’s interesting is that case involved the challenge to MBE program by a — largely — non-minority contractor’s association, who claimed that their non-minority members would be injured by the program.  The holding in that case reaffirmed the long standing proposition that in order to survive constitutional muster courts would apply a strict scrutiny analysis to MBE programs and that in order to survive such scrutiny that state proposing the race based program needs to come forward with compelling evidence of discrimination, i.e. a disparity study.

Here, a challenge to Whiting-Turner’s contract based on this theory could very well blow up in the MCA’s face because a disparity study is used to just the constitutionality of the program.  If the Court comes back and requires a disparity study which shows that the goals should be less than what Whiting Turner proposed, it could trigger a lawsuit by non-minority firms while also decreasing the number of minority firms participating on the project.

The MCA may want to rethink their strategy here.

Bid Protests Are Worth It!

So concludes an upcoming report by the former Dan Gordon, the former head of the Office of Federal Procurement Policy.

According to Gordon, among the pro’s of a bid protest are:

Protests introduce a relatively low-cost form of accountability into acquisition systems by providing disgruntled participants a forum for airing their complaints;

They can increase potential bidders’ confidence in the integrity of the procurement process if the GAO is directly responsive to participants’ complaints, leading more players to participate;

Protests can increase the public’s confidence in the integrity of the public procurement process; –The known availability of the protest avenue empowers those in contracting agencies who face pressure to act improperly;

Protest decisions made public provide a high level of transparency into what is happening in the federal procurement system; and

Protests provide guidance.

Contractors considering a GAO bid protest frequently grapple with whether the protest will hurt their chance for future contracts. The conclusion from this study seems to be that this is not a valid concern.  Could this report push even more contractors to protest bids with the GAO?

How to File a Federal Bid Protest

In recent years, as private work has become more scare, the competition for public projects has increased.  In turn, so have the number of bid disputes challenging the awards of those public contracts.  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.

 The rules for challenging a contract award and bringing a bid protest depends on the whether the contract is a federal, state, or local government contract.  This blog post gives an overview filing a bid protest for a federal government contract.

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 disposing of the protest and the speed at which the matter is disposed of.  Indeed, the GAO will rule on a bid protest within 100 days of a bid 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.

Does Anyone Know About Pennsylvania’s Public Private Partnership Law?

Last week I took PennDot to task for not mentioning Pennsylvania’s new public private partnership legislation when it was complaining about the lack of financing available for infrastructure projects because one of the main purposes of the act is to finance transportation projects.  In this weekend’s Wall Street Journal Money magazine, there is an article “How to  Buy a Toll Road,” about uber-wealthy families investing in infrastructure projects in emerging markets.  It fails to mention that there are opportunities for not only wealthy families, but also hedge funds, pension funds, and private equity, to invest in infrastructure project right here in the good ole’ USA.

Pennsylvania accepts unsolicited public private partnership proposals.  This means investors can approach the Commonwealth with a plan to invest in an infrastructure project. There is even a guide on how to submit a proposal.  I would imagine investing in US based infrastructure projects is would be preferred because there is less risk.  For example, there is real risk that an infrastructure project in an emerging country never gets completed because of civil unrest in that country, like a coup.

However, if States are serious about funding infrastructure projects with private dollars then they need to do a better job of letting those capable of investing in them that the opportunity to do so.

Does PennDOT Know We Have a Public Private Partnership Act?

The Pennsylvania Department of Transportation recently released its first ever “Transportation Performance Report, a detailed rating of the state’s efforts in safety, mobility, system preservation and accountability, with the results underscoring the need for additional transportation investment.”

According to the report “In the categories of system capacity enhancements, local bridge conditions, pavement reconstruction and transit infrastructure, the state’s performance is rated as “low” due to limited resources and magnitude of need.”  A point that PennDot Secretary Barry Schoch underscored “we still have significant needs that we can’t address with the resources we have.”

Is PennDot aware that last year Pennsylvania passed a public private partnership act for this very reason?  You would think that this report would serve as a perfect platform for PennDot to promote the new P3 and get private industry interested in investing in infrastructure project.

GAO Bid Protest Statistics

The GAO recently published a report summarizing bid protest decision from the GAO for 2012.  Of the several interesting statistics in the report, one jumps out 42% of all GAO bid protest result in some form of relief being awarded to the protester    A copy of the report can be found here:  GAO Bid Protest

How to Appeal a DBE Certification Denial

A contractor denied a DBE certification by a State unified certification program approved by the Department of Transportation has the right to appeal the denial to the Department of Transportation.  Contractors who have seen their certification revoked can file a similar appeal.

Appeals are taken to the Department of Transportation, Office of Civil Rights and must be made within 90 days of the decision denying certification.  Once the Department of Transportation receives the appeal, it will request a copy of the complete record from the agency that denied the certification.  The State agency is required to provide the Department of Transportation with the record within 20 days and the Department usually makes a decision on the appeal within 180 days after receiving the record from the State agency.

Importantly, the Department of Transportation will look only to the record sent to it by the State agency to see if the State agency’s decision is supported.  The Department does not conduct a new hearing or receive new evidence into the record.  This means a contractor seeking DBE approval should make sure to submit as much information as possible to the State agency when making its DBE application.

Contractors Settling DBE Fraud Cases Are Not Out of the Woods Yet

Chris McCabe at Papubliccontracts.com has a post up about a two City of Philadelphia contractors, who reached settlement agreements with the City of Philadelphia related to alleged inaccurate invoices.

Essentially, the City of Philadelphia claimed that Aramark, a food services contractor, overstated the percentage of its overall contract being performed by a certified MBE.  Aramark claimed the MBE was performing 20% of the work, when actually the MBE was performing only about 4%.  Pursuant to the settlement agreement, the contractors agreed to pay the City $400,000.

These settling contractors should not breath a sigh of relief just yet however.  As I have mentioned before, any alleged inaccurate billing put a contractor and potentially the individual partaking in the inaccurate billing at risk for Federal prosecution for wire fraud, mail fraud, and fraud of a local government entity.

Lawyers, Guns, and Money – But Mostly Guns

The Justice Department’s decision to drop its False Claim Act case against Kellogg, Brown, and Root (“KBR”) over armed private security contractors (“PSC”) in Iraq says as much about the touchy subject over America’s increasing reliance on a private army as it does about the need to fully understand ALL of the terms of your contract.

In United States of America v. Kellogg Brown & Root, U.S. District Court for the District of Columbia, No. 1:10-cv-00530, the Justice Department alleged, among other things, that KBR had violated the False Claims Act when it requested payment for services provided by PSC’s to KBR, KBR executives in theater (i.e, Iraq), and KBR subcontractors also operating in theater.  The government claimed that KBR failed to obtain proper authorization from US Central Command (“CENTCOM”) before employing armed PSC’s to provide security to it and its subcontractors.  The government claimed that KBR’s contract prohibited KBR from employing armed PSC’s.  The basis for the government’s claim is one all too familiar to contractors – the incorporation by reference and compliance with laws clauses in KBR’s contract.

KBR entered into a logistical support contract with the government in 2001, before the War in Iraq began, that had nothing to do with private security.  The contract contained a typical incorporation by reference and compliance clauses found in most contracts.  The clause stated:

[KBR] shall ensure that all personnel hired by or for [KBR] will comply with all guidance, instructions, and general orders applicable to U.S. Armed Forces and DoD civilians as issued by the Theater Commander or his/her representative.  This will include any and all guidance and instructions issued based upon the need to ensure mission accomplishment, force protection, and safety, unless directed otherwise in the task order SOW [Statement of Work]

. . .

The contractor shall comply, and shall ensure that all deployed employees, subcontractors, subcontractors employees, invitees, and agents, comply with pertinent Service and Department of Defense directives, policies, procedures, as well as federal statutes, judicial interpretations and international agreements (e.g. Status of Forces Agreements, Host Nation Support Agreements, ect.) applicable to the U.S. Armed Forces or U.S. citizens in the area of operations.

After several high profile incidents involving PSC’s, CENTCOM and the Coalition Provisional Authority issued order essentially banning PSC from owning privately owned firearms without obtaining permission from CENTCOM first.  The government alleged that these orders became part of KBR’s contract via the incorporation and compliance clauses in the contract and KBR, therefore, violated its contract when it employed PSC who carried privately owned firearms without first obtaining permission of CENTCOM.

The parties litigated the case for two years until the government voluntarily dismissed the case without prejudice.  It is doubtful that KBR is celebrating victory, however. First, because the government withdrew the case “without prejudice” that means it can re-file the case against KBR at a later date provided the statute of limitations has not then run.  Second, KBR probably spent close to – if not in excess – of $1,000,000 in legal fees defending a case brought on by one small clause in its contract.

Like most contractors, before this case, I doubt KBR ever gave much thought to the ramifications of the incorporation and compliance with laws provisions in its contracts.  But, I am sure it will now.  As my old mentor used to tell me, if it was not important, it wouldn’t be in the contract.  Therefore, contractors need to the impact of each clause in its contract.  And, in the case of incorporation, compliance with laws, or flow down provisions, they must consider what other terms will apply to the contract other than those in the written agreement before them.