Working on federal and local governmental projects requires that contractors include minorities, woman-owned, or Disadvantaged Business Enterprise firms on their teams either as subs, vendors, suppliers or consultants. The guidelines also require that those amounts be stated in the bidding process and in the reporting process during the construction of the project as well as the final accounting to the public.
Some contractors and owners, in an effort to bypass the guidelines, have found creative ways to accomplish the goals that they have to meet in their bids by defrauding the system and the firms that the MBE and DBE programs set out to help.
We have seen these fraudulent moves for decades. First it was out and out bribes such as, “We’ll include you on the team, pay you a fee and you won’t do a thing,” or “You will need to pay my cousin a fee of x to represent you on this project.” We still see that one around the world in first and third world countries. The “grey bag” is still code for bribes and payoffs in exchange for little or no work on a project.
Then laws were passed and there were “set-asides” for minority and women-owned firms in those major contracts. At first it was 5%, then 10% were included as portions of the construction contracts that were meant for minority firms. Some less than honest forms, both minority and majority made deals. In the 90s, we saw minority firms demanding that Federal guidelines be changed and that major projects have as much as 40% dedicated to so called “minority firms or interests”.
That led to the proliferation of “shell” companies and minority service and professional firms being underwritten by larger firms who needed the ability to bid projects that required minority participation. That led to contract compliance officers on municipal projects in order to minimize the fraud on their projects.
Many times, city, county and institutional owners merely winked at those requirements and quietly contacted their cousins who set up shell companies to meet the requirements. That continued until they were discovered and a number of those officials ended up with jail terms. Fraud again.
Recently, Construction Dive reported on a case in New York involving the Disadvantaged Business Enterprise program. According to the post and to the Times Union, Bridge builder, ING Civil paid over $1 million to settle claims that they defrauded the Federal Disadvantaged Enterprise Program. Prosecutors claimed that ING reported they had promised to buy materials from a minority firm as part of a bid for a major project. After the award and during the project, officials asked for documentation of the purchases and, it was alleged, ING fabricated the documentation and gave them to federal officials who blew the fraud whistle on them. The defendants acknowledged that they had violated the False Claims Act, a no-no punishable by fines and jail time.
The Fed is clamping down on these fraud cases and many of them are coming to light in the federal courts and the morning news. However, in many locations where there is little or no compliance work, lots of those fraud cases go unnoticed and unprosecuted.
But as we said in the headline, “It’s still Fraud Maude!” If you decide to take a turn down that path, you will likely end up like the firms in New York.