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April 16, 2014 Contractor Fraud

Oakland Construction Company Settles False Claims Act Violations

The Small Business Administration (SBA) is a federal agency tasked with, among other things, assisting in the creation and maintenance of small and minority-owned businesses. Under its Section 8(a) Business Development Program, interested applicants can submit their business plan and, if eligible, receive financial assistance for their venture. The program is generally limited to those who can show evidence of economic or social disadvantage, including diminished credit opportunities or identification as one of an American minority group. Applicants must submit proof of their disadvantage in order to receive funding, including written statements and tax returns (if available).

Another perk of the Section 8(a) program is that successful, established businesses can be paired with new businesses under the mentor-protégé program. According to the SBA, the purpose of the mentorship program is to allow Section 8(a) businesses the opportunity to learn to be competitive and achieve entrepreneurial success. Mentors can work alongside protégés in a joint venture to obtain government contracts and can own up to 40 percent of the protégé in order to help the latter build capital.

The False Claims Act is designed to deter and punish any submissions for federal funding or reimbursement that are based on fraudulent invoices or misrepresentations of fact. It is most often used to combat healthcare fraud against programs like Medicare and Medicaid. It is also used to address military contractor fraud and, in today’s case, fraud against government agencies like the SBA.

Facts of U.S. ex rel. Saiz Construction Co. Inc. v. Oakland Construction Co. Inc.

In a recent FCA case out of Utah, Oakland Construction Co. has agreed to pay $928,000 to settle claims it submitted false information to the SBA under its Section 8(a) program. Specifically, Oakland Construction entered into a joint-venture with an 8(a) business known as Saiz Construction for purposes of obtaining government construction contracts specifically set aside for small and minority-owned businesses.

According to allegations, Oakland Construction did not meet the extensive eligibility criteria required to form a joint venture under the mentor-protégé program, yet misrepresented to the government in its bids that members of Saiz were actively involved in the project management and bid preparation process. Upon investigation, it became clear that Oakland Construction was allegedly defrauding the SBA by essentially using Saiz as a front to obtain the contract, while not engaging Saiz in the actual labor and construction involved in its projects. In sum, Oakland performed the vast majority of the work and collected the government’s payments under the guise it was working together with Saiz when, in fact, Saiz was hardly involved.

The case was commenced by the owner of Saiz Construction, Abel Saiz, under the qui tam provisions of the FCA. According to a recent press release by the Department of Justice, Saiz is set to receive $148,480 for his role in prosecuting Oakland Construction.

The SBA’s Inspector General reiterated its dedication to eliminating fraud by stating:

“Large businesses must not be allowed to fraudulently obtain access to contracts set aside for small businesses….The SBA mentor-protégé program enhances the capability of 8(a) participants to compete more successfully for federal contracts through a relationship with another successful business; however, this program must not be used as a vehicle to improperly benefit large, non-disadvantaged companies.”

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