A growing number of False Claims Act cases are holding companies accountable when they get contracts by fraudulently pretending to be minority-owned or woman-owned. In one recent case, an Alabama company wound up paying the Government $1,150,000 after a whistleblower reported that the company was only pretending to hire a Native American-owned company.
The whistleblower’s lawyers filed suit alleging that Caddell Construction, an Alabama corporation, had a contract with the Army Corps during the period between 2003 and 2005. Under the contract, Caddell was to build barracks at two army bases in Fort Bragg, N.C. and Fort Campbell, Ky.
As part of the contract, Caddell agreed to hire and mentor a Native American-owned company. The contractual provision was set up under programs run by the Department of Defense, the Mentor-ProtÃ©gÃ© and Indian Incentive Programs. Caddell claimed it was entitled to payment because it had hired and mentored a Native American-owned company called Mountain Chief. A whistleblower, however, reported that Mountain Chief was not a real company; it had been set up solely to allow Caddell to claim it was using a Native American-owned company. In fact, the whistleblower’s lawyers explained, Mountain Chief was not actually doing any work. It had no employees at all who were working on the project.
In the press release from the Department of Justice, the Government stated that: “Mountain Chief allegedly was merely a pass-through entity used by Caddell to claim payments under the two programs, and didn’t perform the work or receive the mentoring services for which Caddell received payment.”
In addition to pursuing the False Claims Act civil case, the Government also indicted two former employees of Caddell for making the false claims. Mark Hill, the company’s director of business development, and Daniel Chattin, company president, were both indicted in federal court in the Middle District of Alabama. The company avoided prosecution itself by agreeing to pay $2,000,000 and cooperate in the criminal prosecutions.
A Principal Deputy Assistant Attorney General for the Civil Division of the Department of Justice explained that when a company falsely claims that it hired a minority-owned business, it “subvert[s] important government programs.” Indeed, if the Government will not enforce these cases, the government programs might as well be shut down, as businesses will be free to ignore provisions such as the one promoting involvement of Native American businesses.
The Department of Defense began its Mentor-ProtÃ©gÃ© Program in 1991 in order to assist small, disadvantaged businesses (SDB). The program is designed to encourage larger companies to partner with and mentor smaller companies. The smaller company must qualify as a Small Disadvantaged Business under Â§ 8(d)(3)(C) of the Small Business Act, found at 15 U.S.C. Â§ 637(D)(3)(C), or meet similar criteria for businesses owned by Indian tribes, Native Hawaiians, the severely disabled, women, service-disabled veterans, or HUBZone-qualified businesses. For its part, the mentor company receives direct reimbursement for its efforts and/or multiplied credit toward the SDB subcontracting goal set out in the company’s contract with the U.S.
The Indian Incentive Plan is a program begun by Congress. Under the program, a contractor receives a 5% rebate for work subcontracted to, or items bought from, an Indian-Owned Economic Enterprise or Indian Organization.