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Source : Pixabay
May 7, 2021
Author : Alex Bustillos
Last month, an investigation by Boston’s local National Public Radio affiliate GBH uncovered fraud by Gilbane / Hunt, the construction manager of a minor league baseball park in Worcester, Massachusetts.
Gilbane / Hunt claimed that four percent of the construction work, the total valued at $100 million, had been completed by minority businesses. In reality, the number was closer to 0.5%, or $513,430 of the $101 million project.
According to GBH, “Neil Benner, a project executive with Gilbane, told the redevelopment authority the company had been relaying figures to the city based on work its subcontractors planned to pass along to minority and women-owned companies, not the actual expenditures with those businesses.”
Tony Tilton, an official with the redevelopment authority handling the project, said “Why didn't Gilbane know that they were reporting the wrong numbers? And why didn't we know that they were reporting the wrong numbers?”
So, Gilbane / Hunt are blaming their subcontractors for the fraud, and Tilton seems to be blaming both Gilbane / Hunt and authorities.
Unfortunately, this story follows a larger trend of minority-owned businesses not getting their fair share of contracts in Massachusetts. As we have previously reported, in Boston, “black-owned businesses made up 3.5 percent of ‘area enterprises available to undertake prime contracts’ and 5.6 percent of ‘businesses ready for subcontracting opportunities,’ according to [a] study, but ultimately won only 0.4 percent of prime contracts and 1.6 percent of the city’s subcontracting work.”
Similarly, the amount of money swindled by companies falsely claiming status as disadvantaged business enterprises, like minority business enterprises (MBEs) or service-disabled veteran-owned small businesses (SDVOSBs), is staggering.
Take the example of a construction company indicted two months ago. According to the Department of Justice, three men “conspired to defraud the United States by interfering with the function of the SBA and fraudulently obtaining money from as early as 2004 continuing through at least 2017.”
Michael Angelo Padron is charged with “conspiring to install” Ruben Villarreal, “a service-disabled veteran, as the ostensible owner of a general construction company held out as a SDVOSB. However, Padron, along with his co-conspirator and business partner [Michael] Wibracht, allegedly exercised disqualifying financial and operational control over the construction company. According to court documents, the conspirators concealed that control in order to secure over $250 million in government contracts that were ‘set aside’ for SDVOSBs in order to benefit their larger, non-qualifying businesses.”
This allegedly went on “from as early as 2004,” one year after the SDVOSB program was inaugurated, “through at least 2017.”
The practice of using fronts to falsely claim DBE status is not uncommon. Last October, Engineering News Record reported that the company Sonag Ready Mix in Milwaukee “over a dozen years... fraudulently reaped more than $260 million in government contracts intended to benefit minority and veteran-owned businesses,” citing government allegations. The company used minority and disabled veteran contractors as fronts.
And in July of last year, the National Law Review reported that Williams Brothers Construction In. settled with the government after claiming that it would use a DBE for work at Peoria International Airport, but instead used another company.
Meanwhile, a report from February last year by the Department of Defense’s Office of Inspector General found that the department “awarded SDVOSB contracts to ineligible contractors and did not implement procedures to ensure compliance with SDVOSB subcontracting requirements after award.”
The report reviewed 27 contracts valued at $827.8 million. A whopping 16 contractors “did not meet the requirements for SDVOSB status.”
The report found the fraud occurred because the Defense Department “relied on contractors to self-certify” and “did not have additional controls in place for DoD contracting activities to verify the accuracy of those representations.”
Every government agency, be it the Department of Defense, Department of Energy, Department of Transportation — the list goes on — uses some kind of DBE program in its contracting. The same is true at the state level.
While the penalties for getting caught — if fraud is actually caught in the first place — are big, the safeguards against fraud are clearly not strong enough, with companies engaging in this practice for years on end. This defeats the entire purpose of DBE programs, which is to ensure that minority and veteran-owned companies are getting a good share of government contracts. More safeguards should be put in place at both the state and federal level, such as verification by government agencies that contractors actually meet the eligibility requirements, rather than relying on self-verification, for example.