SDB Fraud: Subcontractors Pay $1.9 Million Settlement

Five subcontractors and two individuals have paid the government nearly $1.9 million to resolve allegations that they violated the False Claims Act by falsely representing themselves as small disadvantaged businesses.

According to a Department of Justice press release, the subcontractors self-certified as SDBs to their prime contractors, and those self-certifications were then passed on to the government.

The alleged false claims involved contracts to construct facilities at Marine Corps bases in North Carolina and California.  The prime contracts apparently were issued as unrestricted, and the prime contractors were responsible for meeting certain subcontracting goals.

According to the DOJ, the subcontractors and their principals misrepresented to the prime contractors that they were SDBs, and the prime contractors then incorrectly certified that they had met their subcontracting goals.

The case came to the government’s attention when a former employee of one of the subcontractors filed whistleblower lawsuits against the defendants in federal court.  After reviewing the allegations, the DOJ intervened and took over the cases.  The former employee will receive nearly $400,000 as his share of the settlement.

The settlement demonstrates the long reach of the False Claims Act.  In this case, the government used the FCA to pursue subcontractors, even though those subcontractors did not make any direct misrepresentations to the government.

Some government contractors believe that incorrect self-certifications are rampant at the subcontractor level.  If that is the case, perhaps this settlement will serve as a warning that just because a company is a subcontractor does not mean that it can ignore its obligation to honestly represent its size and socioeconomic status.

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