July 11, 2023. Government contracting involves a lot of trust: the government hires contractors to perform work that it does not have the resources to, and contractors should accurately represent their companies and capabilities. Who’s checking to make sure everyone is playing fair? Whistleblowers.
Government contractors are held to high ethical standards, and knowingly misrepresenting information can have serious consequences. Recently, contractor HX5 LLC, its CEO, and its affiliated joint venture, HX5 Sierra LLC, were slapped with a hefty settlement for allegedly violating the False Claims Act. The parties have agreed to pay the United States over $7.7 million to resolve allegations that they knowingly misrepresented their business to the Small Business Administration. A corporate whistleblower, Vantage Systems, Inc., filed a lawsuit under the qui tam provision of the False Claims Act, which allows private individuals to bring claims on behalf of the government. For bringing small business contracting fraud to the government’s attention, the whistleblower will receive $1,357,964 or 17.5% of the settlement.
The allegations against HX5 stem from its participation in the Small Business Administration’s (SBA) 8(a) business development program. Through this program, the government offers small businesses owned and operated by economically and socially disadvantaged individuals a chance to bid on contracts that they might not otherwise access. Companies apply for certification in this program, and certification opens the door to set-aside contracts, the SBA Mentor-Protégé program, and connection to government procurement and compliance experts, among other benefits. Over a period of six years, HX5 and HX5 Sierra allegedly fraudulently obtained six 8(a) contracts, in violation of the eligibility requirements.
The whistleblower alleged that HX5 knowingly provided false statements to the SBA to maintain its eligibility for the 8(a) program, specifically misrepresenting the company’s owner’s financial status and payments to their family members. Because of the nature of the joint venture, if HX5 had been deemed ineligible for 8(a) program participation, its joint venture HX5 Sierra would also have been ineligible. As a result of the misrepresentation, both companies were improperly awarded set-aside contracts.
The settlement reached in this case underscores the importance of representing accurate information when participating in government contracting programs. Failure to comply with the program’s eligibility requirements can lead to substantial liability for contractors. The Special Agent in Charge of the SBA’s Office of Inspector General’s Eastern Region warned, “Individuals that provided fraudulent information to gain access to SBA funds intended to support eligible small businesses will face justice.” The False Claims Act imposes significant penalties on contractors who knowingly provide false information, up to three times the amount of damages sustained by the government. This case also highlights the importance of whistleblower protections. Whistleblowers who report fraudulent activity can receive a portion of the recovered damages, known as the relator’s share. This provides an incentive for private individuals to report wrongful activity even when they have no direct involvement in the contract’s execution.
Government contracting programs, such as the 8(a) program, are intended to support small businesses owned and operated by disadvantaged individuals. The government provides contracting preferences to these companies to help them compete in the market, which can lead to substantial opportunities for growth and success. However, these programs come with strict eligibility requirements that contractors must adhere to closely. Failure to comply with these requirements can lead to serious consequences, as these contractors learned.
If you would like to report government contracting fraud, you can contact attorneys at Tycko & Zavareei LLP. Eva Gunasekera and Renée Brooker are former officials of the United States Department of Justice and prosecuted whistleblower cases under the False Claims Act. Renée served as Assistant Director at the United States Department of Justice, the office that supervises False Claims Act cases in all 94 United States District Courts. Eva was the Senior Counsel for Health Care Fraud and handled government contractor fraud cases. Eva and Renée now represent whistleblowers. For a free consultation, you can contact Renée at [email protected] (tel.: 202-417-3664) or contact Eva Gunasekera at [email protected]. You can also go to Tycko & Zavareei LLP’s website for whistleblowers to learn more at www.fraudfighters.net.