Numet Machining Techniques, a Connecticut-based machined parts manufacturer for commercial and military aerospace engines, recently agreed to pay $5.2 million to settle alleged violations of the False Claims Act (FCA) for misrepresenting its size standard following an acquisition.
In 2011, Numet Machining Techniques was bought by Numet Industries Inc., an organization owned by KCO Numet Inc., a subsidiary of Kidd & Company, LLC, a private investment firm. Following the acquisition, Numet Machining no longer qualified as a “small business concern” due to its affiliation with the other businesses; however, Numet Machining continued to bid on, and win, contracts using an improper “small business” designation. Between August 2011 and February 2016, Numet Machining falsely certified itself as a “small business concern,” resulting in the improper award of 22 contracts. Numet Machining similarly inappropriately certified itself as a “women-owned small business concern” for three years, between 2013 and 2016.
Generally, an offeror’s size is determined when an offer to a solicitation is made; however, upon acquisition of a small business by a larger business, the small business may lose its “small business concern” status. In cases where a letter of intent is sufficiently clear to represent “an agreement in principle,” the Small Business Administration’s (SBA) “present effect rule” can designate the two entities as “affiliated,” disqualifying the company from bidding on small business set-asides. If an acquisition or merger occurs between offer and award or within 180 days of the offer, the offeror must recertify its size prior to the award, pursuant to a 2020 Small Business Administration Rule. Failing to do so could result in the forfeiture of the award.
Upon obtaining credible evidence of False Claims Act infractions, according to the FAR Mandatory Disclosure Rule, government contractors must disclose such violations to the government in writing. While performing due diligence for Numet Machining’s 2019 sale to the Bromford Group, an international machined component manufacturer, Numet disclosed to the government its affiliation with KCO Numet and Kidd & Company, LLC. The disclosure and continued cooperation were credited to the settlement.
SBA procurement programs are designed to promote and protect the small business community and investigating cases of false size status representations is a priority for the Department of Defense’s Office of Inspector General’s Defense Criminal Investigative Service. Businesses should ensure they correctly represent their size standards, especially after a merger or acquisition. Further, any violations of the False Claims Act should be reported to relevant authorities.
For more information on our firm’s government contractor M&A practice, please contact the author at firstname.lastname@example.org. The author would like to thank our law clerk Stephen Finan for his valuable contributions to this article.