We are currently in the midst of an unprecedented uptick in the prosecution of (alleged) government contractor fraud under vehicles such as the False Claims Act and agency suspension and debarment programs. Generally speaking, the government uses these methods to claw back Federal contracting dollars from contractors suspected of engaging in unethical practices and fraud.
Add another one to the list – the U.S. Department of Transportation (USDOT) Disadvantaged Business Enterprise (DBE) Program is in the news, as the government is cracking down on contractors alleged to have misrepresented their DBE standing in order to reap Program benefits.
In a nutshell, the Program requires state and local transportation agencies that receive USDOT assistance to establish goals and facilitate DBE participation on transportation projects. To be certified as a DBE, a contractor must be a small business owned and controlled by socially and economically disadvantaged individuals.
Recently, the owners of a Pennsylvania contractor pled guilty to defrauding the DBE Program to the tune of nearly $19 million by setting up a sham entity designed to look like a woman-owned minority business. The fraud, which lasted more than 15 years, involved 224 federally funded projects.
While this extreme example involves an obvious case of fraud that all contractors should know to avoid – there is still a lesson to be learned:
The increased level of government enforcement is not limited to contractors intentionally behaving badly. The government is lowering the threshold for culpability – meaning that contractors that make inadvertent mistakes – or simply do not know the rules – are being caught in the crossfire.
For contractors participating in set-aside programs like the USDOT DBE Program, it is particularly important to make sure that your business satisfies the participation requirements before getting started. Failure to know the rules could result in allegations of fraud and severe penalties, including fines, jail time, and debarment.