SDVOSB Fraud: “Pass-Through” Voided Contract, Says CBCA

An SDVOSB set-aside contract was void–and unenforceable against the government–because the prime contractor had entered into an illegal “pass-through” arrangement with a non-SDVOSB subcontractor.

In a recent decision, the Civilian Board of Contract Appeals held that a SDVOSB set-aside contract obtained by misrepresenting the concern’s SDVOSB status was invalid from its inception; therefore, the prime contractor had no recourse against the government when the contract was later terminated for default.

Bryan Concrete & Excavation, Inc., CBCA 2882, 2016 WL 4533096 involved a U.S Marine Corps veteran with a 100% disability rating, Jerry Bryan. Mr. Bryan owned and operated a construction company, Bryan Concrete & Excavation, Inc., which he started in 1999. In 2006, BCE was hired as a subcontractor on a number of projects overseen by Arthur Wayne Singleton.

After learning of Mr. Bryan’s service disabled status, Mr. Singleton urged BCE to start bidding on SDVOSB set-aside contracts. Mr. Singleton offered to assist BCE in getting qualified as an SDVOSB, bidding on federal projects, and managing those projects. During this time, Mr. Bryan and Mr. Singleton entered into a teaming agreement, which stipulated Mr. Singleton would perform all of work on the set-aside contracts for BCE and BCE would pay Singleton for the direct costs and overhead plus 90 percent of the anticipated gross profit. Despite the impermissible pass-through arrangement, BCE self-certified in the VA’s SDVOSB database (this was before the formal verification process required today).

In 2010, the VA issued an SDVOSB set-aside solicitation for chiller and air handling equipment upgrades. BCE submitted a bid, which was alleged to contain a forgery of Mr. Bryan’s signature by Mr. Singleton.  Further complicating matters, Mr. Singleton misrepresented himself to the VA as Mr. Bryan, during discussions of the proposal. BCE was the awarded the contract.

A number of performance issues hampered the of the contract and the VA ultimately terminated the contract default. BCE filed an appeal with the CBCA, seeking to overturn the termination.

During the course of the appeal, the VA learned for the first time that the teaming agreement between Mr. Singleton and Mr. Bryan compromised BCE’s eligibility as an SDVOSB. The VA subsequently moved for the CBCA to grant summary relief for the VA on the ground that BCE’s contract was void from the start and therefore unenforceable because it was obtained by misrepresenting BCE’s SDVOSB eligibility status to the VA.

As the CBCA explained, for the VA to prevail on its motion, it had to demonstrate that BCE had obtained the contract by knowingly making a false statement. The CBCA concluded the VA had met its burden because BCE had received a VA contract by misrepresenting its SDVOSB status. Since the misrepresentation occurred before the contract was awarded, the entire award was tainted from the beginning and thus void ab initio—from the beginning.

BCE countered that even if the contract was void from the start, subsequent dealings with the VA had created implied contracts that BCE had rights under. The CBCA was not impressed by these arguments and concluded:

While BCE may believe that it has the right to enforce a new agreement that ‘adopts the terms of the agreement that has been deemed void,’ whether through equitable estoppel, promissory estoppel, or other legal theories, the law does not work that way. ‘No tribunal of law will lend its assistance to carry out the terms of an illegally obtained contract.’

BCE’s case highlights just how little tolerance there is for concerns who misrepresent themselves to gain SDVOSB set-aside contracts. Not only can the government impose fines, jail terms, and other penalties, but the underlying contract can be considered void from the outset.

Oh, and speaking of jail time–Mr. Singleton was sentenced to two years in prison back in 2013.

Ian Patterson, a law clerk with Koprince Law LLC, was the primary author of this post.