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.
