SDVOSBLAW: Government Contract Law Firm - SDVOSB Law, Claims, Disputes, Protests

On October 10, 2018, the Court of Federal Claims denied a contractor’s pre-award protest, challenging CVE’s denial of its SDVOSB verification status. Without VETBIZ verification, the protester, BTR Enterprises of SC, LLC, was not eligible to receive a contract under a VA SDVOSB set-aside procurement. The protester argued that CVE did not act reasonably when cancelling its SDVOSB VETBIZ verification.

CVE cancelled the contractor’s SDVOSB status after learning that the service disabled veteran did not actually run the company.  This was based on information obtained during an OIG Special Agent investigation in which the service disabled veteran admitted that he did not run the company because of PTSD.  Instead, his wife, mother and father allegedly helped run the company. These statements were inconsistent with the service disabled veteran’s representations to CVE that he devoted full time to the management of the company. To make matters worse, the service disabled veteran plead guilty to defrauding the VA by misrepresenting his service-related disabilities.

The Court of Federal Claims held that VA acted reasonably when refusing to consider BTR Enterprises eligible to participate in an SDVOSB procurement.  The Court had some harsh words to say:

Mr. Robert’s guilty plea puts paid to any suggestion that BTR should be eligible to receive this VA contract. It is clearly not in the public interest for VA to award contracts to a business owned by someone guilty of conspiring to defraud the VA, the same agency from which he seeks a contract award.

This case reminds us that fraud continues to impact the SDVOSB program.  Here, the Court was no about to allow a person to benefit from the fruits of his fraud by obtaining a government contract.

BTR Enterpises of SC, LLC, No. 18-1241C, United States Court of Federal Claims (October 10, 2018)

Posted in SDVOSB Fraud

On July 31, 2018, in LW Construction of Charleston, LLC v. United States, the Court of Federal Claims allowed the Department of Justice to amend their answer against LW Construction to include counterclaims based on SDVOSB fraud.  LW Construction filed a Complaint against the Department of Veterans Affairs, which among other things, requested that a termination for default be converted to a termination for convenience.  The terminated contract was for construction work at the Fort Jackson National Cemetery.

The DOJ’s counterclaim alleges that LW Construction misrepresented its SDVOSB status when submitting a proposal for, and was awarded, the VA contract. The DOJ seeks payment for all monies paid to LW Construction under the contract, liquidated damages, reprocurement costs and significant False Claims Act damages.

The VA contract was awarded to LW Construction on June 2, 2009.  CVE subsequently removed LW Construction from the VIP database on October 24, 2011. This was based on LW Construction’s organizing documents and public information. The company’s bylaws were clearly not in compliance with the SDVOSB rules since all members had to agree to decisions pertaining to the management of the company.  This stripped the service disabled veteran of the ability to control the company.  So, the CVE found that LW Construction was not a qualified SDVOSB.

The DOJ alleges that LW Construction was fraudulently set up by a non-veteran and that the service disabled veteran was not really in charge.  There are a number of allegations pointing to fraud besides the language in LW Construction’s operating agreement, which are not fully mentioned in this article.

LW Construction continued to perform the VA contract after it lost CVE verification of its SDVOSB status.  The VA allowed LW Construction to continue performance of the contract, citing the regulation that allows the SDVOSB to continue performance even if its status changes during contract performance.  13 C.F.R. 125.15(e)(1); 38 C.F.R § 74.11(c) The Contracting Officer provided a declaration stating that he would have terminated the contract for default had he known that LW Construction obtained the contract fraudulently.

The Court found that the evidence currently before it “ does not establish that the government knew that LW had misrepresented its SDVOSB when it bid on and was awarded the Fort Jackson contract so as to negate a finding of justifiable reliance.”  The Court noted that in 2009 when the VA awarded the contract to LW Construction, SDVOSBs were merely required to self-certify their SDVOB status.

LW Construction also argued that there can be no fraud based on contract payments received after it lost SDVOSB status. In other words, the VA knew LW Construction was not a qualified SDVOSB, but decided to keep paying LW Construction anyway. The Court rejected this defense noting that the regulation allows a contractor to continue performance if its SDVOSB status changes after contract award:

Whether the government knew or should have known that LW had misrepresented its SDVOSB status when it bid on the Fort Jackson contract is the operative issue, not whether LW was allowed to continue to perform on the Fort Jackson contract once LW’s SDVOSB status was revoked in 2011. The court, therefore, finds that defendant has met materiality concerns with respect to all of defendant’s proposed FCA counterclaims.

Note that the Court has not rendered a ruling on whether LW Construction actually committed fraud.  There will be a trial for that.

Posted in Featured, SDVOSB Fraud

A grand jury in Kansas has indicted a service disabled veteran for participating in a pass-through scheme. The indictment, United States v. Joseph David Dail, Jr., Case No. 17-20068-CM/TJJ (November 29, 2017), claims that the service disabled veteran used his status to create a sham SDVOSB company called United Medical Design Builders. The indictment alleges that this company falsely received a $40M MATOC to construct health care facilities at several Air Force bases.  The company received task orders under this MATOC totaling over $30M.  Allegations of fraud in the indictment include:

• The service disabled veteran “was hardly ever in the office during the four years of the witness’ employment at United Medical Design Builders.”
• All business decisions had to be approved by a non-veteran who rarely met with the service disabled veteran.
• A non-veteran “ran the day-to-day operations for United Medical Design Builders.”
• The service disabled veteran sign a blank sheet of paper that was scanned and used for official letters and correspondence, even with the USACE, because he was never in the office and his signature was always needed.
• The non-veteran created invoices and/or change orders to bleed profits from the company.
• The non-veteran rarely met with the service disabled veteran and made all of the business decisions for United Medical Design Builders.
• The service disabled veteran “was the figurehead and never showed up for work.”

This case emphasizes the need for the service disabled veteran to remain in complete control of his company and finances.  Otherwise, you can face serious consequences, both civil and criminal.

Posted in SDVOSB Fraud

From May 2008 to October 2010, Alexander Robert Xavier of Florida issued worthless bonds, meant for government construction contracts, to several different federal agencies, including the Department of Veterans Affairs. Xavier claimed to be an “individual surety” (mandatory insurance for major government construction projects) on the payment bonds. In actuality, these assets never existed. Previously Xavier was found guilty of major fraud including mail fraud and making a false statement to the Department of the Army.

According to evidence at trial, Xavier and his associates received over $4.3 million in fees from the United States Department of the Army and the United States Department of Labor.  District Judge Kenneth A. Marra sentenced Xavier to 150 months in prison and to repay over $4 million in compensation.

DOJ Press Release – Palm Beach County Man Sentenced to 150 Months’ Imprisonment for Role in Bonding Fraud Scheme (December 2, 2016)

Posted in SDVOSB Fraud

Federal Grand Jury Indictments

Posted in SDVOSB Fraud