Hensel Phelps Construction Company will pay $2,804,110 to settle allegations that it engaged in small business subcontracting fraud. The case stemmed from a qui tam whistleblower complaint filed in the U.S. District Court for the Northern District of New York. The whistleblower in the case is Fox Unlimited Enterprises, LLP, and will receive $630,925 of the settlement.
The qui tam provisions of the False Claims Act enable private citizens to file lawsuits on behalf of the government if they know of an individual or company defrauding the government. Qui tam whistleblowers are eligible to receive between 15 and 30% of the government’s recovery, if one occurs.
Details of the Case
The U.S. Department of Justice (DOJ) press release explains that “[f]ederal government contracts and subcontracts may be reserved, or ‘set aside,’ for various categories of small businesses, such that only eligible small businesses in a particular socioeconomic category are eligible to bid on, receive, and perform the contracts.” One of these categories is a service-disabled, veteran-owned small business, or SDVOSB. This category is “reserved for small businesses owned, controlled, and operated by veterans of the United States military who incurred a disability in the course of their military service to the United States.” According to the press release, “[l]arge businesses that perform on large federal prime contracts must develop and implement small business subcontracting plans designed to subcontract portions of the work to SDVOSBs and other types of small businesses.”
The settlement agreement states that Hensel Phelps, a “general contractor and construction firm,” is “one of the largest public/government building contractors in the United States.” According to the document, the General Services Administration awarded Hensel Phelps “a multi-million dollar contract to construct the Armed Forces Retirement Home’s (“AFRH”) New Commons/Health Care Building” in Washington, D.C. in 2011. Hensel Phelps entered a $1,078,504 subcontract with a SDVOSB to complete work involving “supplying and installing kitchen equipment,” as “Hensel Phelps did not normally perform those services.”
According to the settlement agreement, Hensel Phelps first agreed to terms of a different subcontract with a large company, but that subcontract was never executed. “Hensel Phelps then entered a subcontract with the SDVOSB utilizing the same terms and pricing that were set forth in the draft subcontract” that Hensel Phelps negotiated with the other company. “The pricing left the SDVOSB with a 1.5% fee for its responsibilities on the subcontract,” the document states.
Hensel Phelps and the larger company it initially approached agreed that the SDVOSB would enter a second-tier subcontract with the larger company, “and the terms of the second-tier subcontract were negotiated and agreed to by Hensel Phelps” and the bigger company “without any input from the SDVOSB.” The settlement agreement states that Hensel Phelps “also failed to request or obtain certain information that a prime contractor typically asks of a subcontractor before agreeing to work together on a federal government project” and provides more insight into the information Hensel Phelps did not obtain from the SDVOSB, among other information.
The whistleblower in this case filed a qui tam lawsuit on April 15, 2022; part of the allegations were that “Hensel Phelps presented and caused to be presented false claims and statements to the United States in connection with the AFRH project subcontract award to the SDVOSB described” in the agreement. The government intervened in the case on May 6, 2022. As part of the settlement, the whistleblower will receive $630,925.
“Taking advantage of contracts intended for companies owned and operated by service-disabled veterans demonstrates a shocking disregard for fair competition and integrity in government contracting,” said United States Attorney Waldref in the press release. “We insisted not only that Hensel Phelps refund the government and pay a hefty penalty for its misconduct, but that it admit to its misconduct.”
The False Claims Act in 2021
The DOJ released data from Fiscal Year 2021 about the False Claims Act and reported that whistleblowers helped the DOJ recover $1.6 billion in settlements during the past fiscal year.
However, “the DOJ only paid out $237 million to whistleblowers, the lowest single-year total since FY 2008,” WNN reports. Whistleblower attorney Stephen M. Kohn said that the FY 2021 totals “reflect a troubling trend in recent years…The DOJ has begun to treat whistleblowers like second-class citizens. It routinely throws out strong whistleblower cases without just cause. While the SEC and CFTC are making great strides forward with their whistleblower programs, the Justice Department is in reverse.” Read the full article about the False Claims Act in FY 2021 here.