Much of the work of the federal government is accomplished through contracts with non-governmental entities. For the fiscal year ending September 30, 2012, those contracts added up to more than $500 billion. The Legislature wants a good portion (23%) of those dollars to go to small businesses as a means of strengthening the nations’ economy. To achieve that goal, the government designates certain contracts and subcontracts as “set aside” for small businesses. The Small Businesses Administration oversees these set-asides. Contracts are further set aside for small businesses with additional distinctive characteristics including small businesses that are disadvantaged, women-owned, service disabled, veteran owned, and small businesses located in economically distressed communities (HUBZones). One of the goals of the set asides is to help small businesses of various types to grow and to develop the competence and expertise to compete in the open market for government contracts.
Regrettably some large businesses game the system by using so-called small businesses as a “front” to acquire small business contracts. Then the actual work is steered primarily to the large businesses, with the “small” business getting some pay for its service as the “front.” The result is that both the large and “small” businesses get access to set-aside contracts for which neither is eligible.
The other negative side of the scam is that legitimate small businesses are cheated out of the opportunity to acquire and do the work on contracts that will help them grow and develop as a business. Besides cheating small businesses, this conduct cheats the government by undermining its goal of building up the economy through building up legitimate small businesses.
Gaming the system in this way is illegal. Persons who know about this type of scam, whether as an employee, or competitor, or though some other means, can challenge the conduct by bringing what is called a qui tam complaint against the cheaters through the False Claims Act. The Legislature feels so strongly about this illegal conduct that it included a provision in the Small Jobs Act of 2011 stating that the presumed damages for the illegal conduct consists of the entire amount of the contract. Challenging businesses that cheat on small business set-aside contracts is a significant way for citizens to take a stand against government fraud.
Written by Susan M. Coler.
Susan Coler is a partner at Halunen Law. She represents whistleblowers in False Claims Act or qui tam cases. These include cases involving fraudulent contracting with the United States. She represented one of the relators in a pharmaceutical case that resulted in the 6th largest settlement in the history of the False Claims Act.