Two highway contractors have agreed to pay nearly
$2,883,947 to resolve a lawsuit brought by a whistleblower. The whistleblower reported that the companies were falsely claiming they
were disadvantaged business enterprises in order to get an advantage in
getting lucrative government transportation contracts.
The contractors who agreed to pay up were TesTech, Inc., and CESO (CESO
International, LLC and CESO, Inc.). Both contractors are based in Dayton,
Ohio. The company owners also were part of the agreement to repay the
government.
Whistleblower lawyers have been closely watching a number of False Claims
Act cases that relate to companies that make false claims in order to
get lucrative federal contracts. In many fields – from highway building
to defense – the Government is just about the only show in town.
If a company cannot get government contracts, it essentially cannot operate
in the field.
In order to encourage minority-owned and women-owned businesses, a certain
percentage of federal-funded transportation project contracts are set
aside for woman-owned and minority-owned businesses. In order to get these
contracts, contractors have to provide documentation showing that they
are owned by minorities or women.
Whistleblower Ryan Parker, a former TesTech employee, filed his lawsuit
in the United States District Court for the Southern District of Ohio.
He alleged that TesTech was awarded a number of contracts for highway
and airport construction in Ohio, Indiana, Michigan and Kentucky. Although
TesTech was owned by minority owner Sherif Aziz, Parker claimed that TesTech
really was owned and controlled by CESO.
Parker said that TesTech was just a front set up to gain contracts set
aside for DBE (disadvantaged business enterprises); the company was really
owned and controlled by CESO and its owners, David and Shery Oakes. In
order to qualify for minority-owned business contracts, CESO owners David
and Shery Oaks falsely claimed that Sherif Aziz owned TesTech. In reality,
the suit says, the Oakes and CESO controlled and operated TesTech.
As a whistleblower lawyer, I have been closely watching cases similar to
the Testech/CESP lawsuit. Contractors have been arguing that in practical
terms they cannot be sued even in situations where the relator and the
Government have clear proof that the company lied about whether it was
qualified to receive a contract.
These contracting companies admit that technically a suit could be filed,
but they argue that the Government should not file the suit because in
the end it will not be able to prove it has any damages. False Claims
Act cases only make sense, they say, where the defendant is paid to provide
something but ends up not providing anything at all, or at least supplies
less than it is supposed to provide. By contrast, in these cases, the
defendant actually provides the services. As a result, these contractors
argue that the Government has no damages that would make the FCA case
worth pursuing.
The problem with the argument, of course, is that it undermines Congressional
policy. For specific reasons, Congress has made rules about the companies
with which it wants to contract. Congress has said it wants to encourage
minority-owned, Indian-owned, veteran-owned, and women-owned businesses.
If companies can claim to fit in those categories and suffer no damages
for what they have done, then ultimately the Government has no way to
carry out the policy that Congress says it wants to carry out.
Similarly, Congress has said it only wants to buy goods that are made in
America or a country friendly to our nation. If businesses cut corners
and buy goods and ingredients from other nations, then companies that
try to buy the goods as Congress wanted will be at a competitive disadvantage.
In the end, the rule that Congress thought was important will be eroded
as more and more companies profit by cheating.