DBE Fraud: $5 Million Settlement In Pass-Through Case

A large business has agreed to pay nearly $5 million to resolve False Claims Act allegations that it participated in a “pass-through” scheme designed to take advantage of the Department of Transportation’s Disadvantaged Business Entity program.

According to a Department of Justice press release, HD Supply Waterworks conspired with subcontractors to list a now-defunct Native American-owned company as a subcontractor, when in fact the subcontractor’s work was passed through to Waterworks.

According to the press release, in 2008, the government began investigating various prime contractors that claimed to have conducted business with the Native American-owned firm, American Indian Builders & Suppliers, Inc.  The investigation revealed that although AIB had been listed as a subcontractor on several projects, AIB had not performed commercially useful functions on those projects.  Instead, “a third party that would not itself qualify as a DBE performed the work or supplied the materials, and received much of the financial benefit.”  AIB, in turn, would collect a small percentage of the subcontract amount as a pass-through fee.

The government alleged that Waterworks conspired with several prime contractors to falsely represent that AIB would perform subcontract work, when in fact the prime contractors and Waterworks had agreed to use AIB as a pass-through.  According to the government, AIB would simply collect Waterworks’ invoices, add its own markup, and pass those invoices through to the prime contractors.  The government alleged that this scheme allowed the prime contractors to falsely claim that AIB had performed subcontract work, when in fact that was not the case.

The pass-through scheme shows up across government contracting preference programs–from the SDVOSB program to the 8(a) program and beyond.  It is good to see that the government continues to aggressively pursue these cases.  Hopefully, potential fraudsters will start to get the message that pass-through crime doesn’t pay.

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