A large business has agreed to pay $1.1 million to resolve allegations that it created a “front company” to be awarded a SDVOSB set-aside contract–and then served as a “pass through” by performing the work itself.

In addition to the $1.1 million penalty agreed to by the large contractor, the putative SDVOSB has agreed to pay the government $50,000, plus five annual contingency payments equal to one percent of its total annual revenues.

According to a Department of Justice press release, the government alleged that W.G. Mills Incorporated created a company called Veterans Constructors Incorporated to pursue SDVOSB set-aside contracts.  The government alleged that “W.G. Mills created VCI merely as a contracting vehicle and . . . VCI’s affiliation with W.G. Mills rendered it ineligible to be awarded set-aside contracts for SDVOSBs.”

VCI successfully won a Coast Guard set-aside contract.  The government alleged that W.G. Mills then “performed the work that VCI was required to perform under the Coast Guard contract.”

Two whistleblowers brought suit under the False Claims Act, and the government joined in the lawsuit.  The settlement resolves the False Claims Act suit.  W.G. Mills merged with Gilbane Building Company in 2010, and it is Gilbane that will pay the $1.1 million.  As with almost any settlement, it is important to remember that there was no finding of liability; the claims resolved by the settlement remain allegations only.

If anyone should know better than to violate the SDVOSB regulations, it is a large, sophisticated contractor.  It is heartening to see the government pursue penalties against a large business that was alleged to have abused the SDVOSB program.  Hopefully, settlements like this one will serve as a deterrent for others that might be tempted to try something similar.