May 28, 2022

Volume XII, Number 148

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Construction Company Settles False Claims Act Allegations Relating to Small Business Subcontracting for $2.8 Million

On May 12, the U.S. Department of Justice announced a $2,804,110 settlement with Hensel Phelps Construction Company to resolve allegations that it violated the False Claims Act (FCA) by circumventing federal regulations designed to encourage contract awards to service-disabled veteran owned small businesses (SDVOSBs). According to the settlement, Hensel Phelps, a general contractor that performs public and private construction projects, improperly claimed credit toward its small business subcontracting goals for subcontracts it awarded to an SDVOSB that it should have known was acting as a mere “pass-through” for a large business that was actually performing the work.

The settlement highlights DOJ’s continued focus on FCA enforcement actions involving allegations of small business contracting fraud. DOJ has entered into a number of settlements with large businesses resolving such allegations, including a recent $48.5 million with TriMark USA, LLC, which DOJ described as “the largest-ever False Claims Act recovery based on allegations of small business contracting fraud.” DOJ’s interest in these types of cases stems from its theory that, under the “presumption of loss rule,” 15 U.S.C. § 632(w), the government’s “damages” arising from misrepresentations of small business size or status are equal to the entire value of the contracts awarded. Combined with the FCA’s treble damages provision, the presumption of loss rule makes small business contracting fraud an attractive enforcement target for the government, as well as whistleblowers who can share in the recovery.

These settlements underscore the significant risk of liability for large contractors teaming with small businesses that do not meet the requirements for the size or status they claim. The consequences of resolving such allegations are severe and are not limited to paying a hefty settlement amount. Contractors will also face the ramifications of DOJ publicizing the settlement amount and allegations, and could be subject to suspension and debarment proceedings by federal agencies after the settlement with DOJ has been finalized.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 133
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About this Author

Melissa P. Prusock Government Contract Litigation Lawyer Greenberg Traurig Law Firm
Associate

Melissa Paige Prusock focuses her practice on government contracts litigation, counseling, and investigations. Melissa advises clients on a variety of matters involving government contracting, including claims and disputes, bid protests, and audits and investigations. She provides strategic advice to state and local governments on procurement and other issues associated with the expenditure of federal funds by state and local government grantees, and counsels targets of investigations pursued by the Department of Justice and various offices of Inspectors General, including those of...

202-530-8535
Matthew Cannon, Greenberg Traurig Law Firm, Chicago, Litigation Attorney
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Matthew J. Cannon has almost two decades of criminal and civil litigation experience. He has served as the First Chair in numerous federal jury trials and has combined his courtroom skills, his experience as a federal prosecutor with the Department of Justice (DOJ), and his wide-ranging civil litigation skills into a practice that combines anti-corruption compliance work and litigation. Matt’s practice includes implementing and assessing anti-corruption compliance programs throughout the world, including programs focused on the Foreign Corrupt Practices Act (FCPA)...

312-456-1066
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Michael J. Schaengold focuses his practice on government contracts litigation and counseling, and on litigation before the U.S. Court of Appeals for the Federal Circuit and the U.S. Court of Federal Claims.

Mike is the Chair of the firm’s Government Contracts & Projects Practice. His substantial government contracts dispute and bid protest experience includes litigation of major cases before the Government Accountability Office (GAO), the Court of Federal Claims, the Court of Appeals for the Federal Circuit and the Boards of Contract Appeals. He has represented clients in...

202-331-3146
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