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This is a good article on how businesses can get in trouble when doing federal contracts.  In this case, it's about how a company got into trouble by chasing dollars and having the wrong incentives (if you need a bond for your construction job check out our surety bonds (including construction bondsbid bonds, or performance bonds).

https://patch.com/connecticut/farmington/3-million-plus-fine-imposed-farmington-business

$3 Million-Plus Fine Imposed On Farmington Business: Feds

A fine of more than $3 million has been levied on a Farmington business by federal authorities.

Chris Dehnel, Patch Staff

FARMINGTON, CT — A fine of more than $3 million has been levied on a Farmington business by federal authorities.

John H. Durham, United States attorney for the District of Connecticut, said Friday that Ducci Electrical Contractors Inc., of Farmington, will pay more than $3.2 million and implement "internal reforms" to resolve a criminal and civil investigation into possible fraud committed by the company in connection with public construction contracts in Connecticut that were principally funded with U.S. Department of Transportation financial assistance.

The USDOT's Disadvantaged Business Enterprise program is intended to provide small businesses owned by socially and economically disadvantaged individuals a fair opportunity to compete for federally funded transportation contracts, officials said.

When a DBE participates in a contract funded with USDOT financial assistance, only the value of the work actually performed by the DBE counts toward a DBE goal, Durham said. A DBE must be performing a commercially useful function on the contract, which means that it is actually responsible for execution of the work of the contract and is carrying out its responsibilities by actually performing, managing and supervising the work involved, he added.

"A DBE performs a commercially useful function if it negotiates the price, quantity and quality of the materials to be used on the contract, pays for the materials and, when applicable, installs those materials," Durham said in a news release. "A DBE does not perform a commercially useful function if its role is limited to that of an extra participant in a transaction, contract or project through which funds are passed in order to obtain the appearance of DBE participation."

In April 2007, the Connecticut Department of Transportation selected Ducci Electrical to be the prime contractor for a construction contract valued at $79,234,692 to replace 11 miles of catenary, which is overhead line wire used to transmit electrical energy to trains, Durham said.

The contract, which was funded with USDOT financial assistance, required Ducci to comply with DBE regulations and designated a DBE goal of 13 percent, he said.

In its bid documents, Ducci proposed to subcontract to a particular DBE, case records show. In March 2012, Ducci received a public construction subcontract valued at $6,699,999.60 relating to the Bus Rapid Transit system along a 9.4-mile corridor between New Britain and downtown Hartford, Durham said.

The contract, also funded with USDOT financial assistance, designated a DBE goal of approximately 12 percent. In its bid documents, Ducci proposed to subcontract $852,500 in work to "Company No. 1."

The government contends that Ducci knew that Company No. 1 would not be performing a "commercially useful function as a DBE on either contract," Durham said. Ducci terminated certain Ducci employees and immediately provided those employees to work for Company No. 1 on the 2007 contract, and controlled the employees that would work for Company No. 1 on the 2012 contract, Durham said.

For both contracts, Ducci supervised Company No. 1 employees and provided Company No. 1 with the hours worked by those employees for billing and payroll purposes, provided Company No. 1 with Ducci-owned equipment, and negotiated for and ordered materials Company No. 1 purchased for the project, he said.

Although Company No. 1 never performed a commercially useful function for either contract, Ducci submitted to ConnDOT and other entities periodic DBE update forms and certified payroll and payment verifications for work Ducci claimed Company No. 1 had performed that would qualify for DBE credit, Durham said.

In a non-prosecution agreement with the government, Ducci admitted that Company No. 1 was not performing certain commercially useful functions on the 2007 and 2012 contracts, and that it caused false statements to be submitted to the United States and ConnDOT, thereby depriving other DBE companies of that or other work," Durham said.

Ducci represented in the non-prosecution agreement that it has undertaken various remediation measures to ensure its compliance with the DBE requirements on current and future federally funded construction projects, Durham said.

As part of a civil settlement agreement with the government, Ducci has agreed to pay damages of $3,233,593.64, plus interest, to resolve civil False Claims Act allegations, and it has entered into a monitoring agreement with the Federal Transit Administration.

"The financial penalty and monitoring agreement imposed on Ducci, combined with remediation measures the company has pledged to undertake, should ensure that Ducci will lawfully comply with the requirements of all publicly-funded contracts going forward," Durham said. "Companies that lie to gain an unfair advantage over their competitors, thus preventing true disadvantaged businesses of opportunities to perform work on taxpayer-funded construction projects, will be held accountable."

"Disadvantaged Business Enterprise fraud diminishes the integrity of DBE programs by exploiting efforts to ensure a level playing field on which firms can compete fairly for federal contracts," said Douglas Shoemaker, special agent-in-charge of the U.S. Department of Transportation Office of Inspector General (DOT-OIG) Northeast Region. "Our agents will continue to work with our law enforcement and prosecutorial partners to expose and shut down DBE fraud schemes that adversely affect public trust and DOT-funded transit programs in the State of Connecticut and throughout the United States."

 

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