An 8(a) Program mentor has agreed to pay a False Claims Act settlement of $928,000.  The settlement stems from the government’s claims that the mentor abused the 8(a) mentor-protege program.

According to a Department of Justice press release, the mentor firm performed eight 8(a) prime contracts on behalf of its protege–without an SBA-approved joint venture.  The government also contended that the mentor’s extensive role resulted in the protege firm failing to meet the applicable limitation on subcontracting.

According to the DOJ, Okland Construction Co. Inc., a large business, entered into an 8(a) mentor-protege agreement with Saiz Construction Co., an 8(a) participant.  Although the SBA did not approve joint ventures between the companies, Okland allegedly prepared the bids for the 8(a) contracts and Okland’s employees served as project managers, submitted invoices, and performed payroll and other accounting functions.

The government also alleged that Okland’s extensive involvement resulted in Saiz’s inability to meet the 15% limitation on subcontracting applicable to general construction contracts.  Okland allegedly concealed its extensive involvement in the 8(a) contracts by misrepresenting to the government that its employees were employees of Saiz.

Often, False Claims Act lawsuits are filed by former employees of the firm being accused.  But in this case, Saiz Construction itself initiated the False Claims Act lawsuit.  According to the DOJ, Saiz terminated its mentor-protege agreement with Okland, then Saiz and its owner filed a civil suit against Saiz’s former mentor.  Under the False Claims Act’s whistleblower provision, Saiz and its owner will receive $148,480 of the settlement amount.  The settlement resolves only the government’s claims; there was no finding of liability.

The DOJ’s pursuit of False Claims Act penalties against Okland should serve as an important reminder to 8(a) mentors: a mentor-protege agreement does not give the mentor carte blanche within the 8(a) Program.  Even with an approved mentor-protege agreement in place, the protege cannot be a mere figurehead or “pass through” for the mentor.