Two Washington, D.C. area government contractors have agreed to pay the government for their respective roles in defrauding the U.S. Small Business Administration (SBA) in schemes to fraudulently obtain government contracts set aside for small businesses.  These two cases highlight the importance of small business compliance and the submission of accurate and complete certifications.

Company Pays $16 Million for Violating FCA

ADS Inc. agreed to pay the government $16 million to settle allegations involving False Claims Act (FCA) violations.  ADS and several of its subsidiaries allegedly fraudulently obtained small business set-aside contracts by misrepresenting the subsidiaries were eligible small businesses.  These misrepresentations included falsely certifying eligibility as a service-disabled veteran-owned small business (SDVOSB) and socially or economically disadvantaged small businesses under the SBA’s 8(a) Program.  The SBA regulations clearly state that subsidiaries are “affiliated,” meaning the subsidiaries’ employees or revenues are jointly considered, for purposes of calculating size.  13 C.F.R. § 121.103.  In addition, SDVOSB and 8(a) Program set-asides require additional documentation and qualification processes to first be deemed an eligible SDVOSB or 8(a) small business prior to submitting proposals.

By allegedly fraudulently obtaining these small business set-aside contracts and submitting invoices for payment under them, ADS and its subsidiaries violated the FCA.  It is important to note that each invoice or request for payment fraudulently submitted is a separate violation of the FCA, resulting in a civil penalty of between $5,500 and $11,000 per violation, plus three times the amount of damages the government sustains as a result of the violation.  31 U.S.C. § 3729(a)(1)(G).

Individuals Pay $1.25 Million with Prison Time for 8(a) Set-Aside Contract Fraud

In the second plea, two individuals, Yogesh Patel (Patel) and Wesley Burnett (Burnett), pleaded guilty to fraudulently obtaining nearly $3 million in 8(a) set-aside contracts.  Patel owned United Native Technologies, Inc. (UNTI), which was a certified 8(a) small business.  Burnett owned Confederate Group and Total Barrier Works (TBW), which provided security systems services to the government.  Patel and Burnett met at a conference in Costa Rica and allegedly conspired to use UNTI’s 8(a) status to obtain 8(a) set-aside contracts and to have Burnett and his company actually perform the work.  Burnett allegedly agreed to pay Patel approximately 4.5% of the total value of any contract awarded to UNTI.

Although Patel received disability payments from the Social Security Administration, he falsely certified to the SBA that he ran UNTI full-time.  He also falsely certified that UNTI was not receiving any outside financial assistance although Burnett and his company were providing financial support.

Burnett was sentenced to 42 months in prison followed by three years of supervised release and was ordered to forfeit approximately $700,000.  Patel was sentenced to 21 months in prison followed by three years of supervised release and was ordered to forfeit approximately $550,000.

Small Businesses Must Be Diligent on Compliance Matters

These two cases highlight the continued focus on pursuing allegations of small business fraud for any businesses representing themselves as small for purposes of government contract preferences.  They serve as a reminder to periodically confirm continued eligibility for such preferences.  If you have any questions about small business compliance, please contact Richard Arnholt or Sylvia Yi.