All bond producers and underwriters should be aware of the recent announcement about how a company’s “improper conduct” regarding procurement laws lead to investigations by the Federal Bureau of Investigation, SBA Inspector General, U.S. Attorney’s Office, and D.C. Inspector General.

It was on December 15, 2014, that the Federal Bureau of Investigation (FBI) and the U.S. Department of Justice each issued a press release that began as follows:

WASHINGTON–Forrester Construction Company has agreed to pay $2.15 million to the United States and implement internal reforms to resolve a criminal investigation into alleged fraud committed by the company in connection with the use of Certified Business Enterprises (CBEs) in the procurement of more than $145 million in District of Columbia government contracts.  The internal reforms will be subject to independent review and reporting.

As part of the resolution, Forrester Construction admitted that it improperly entered into written letter agreements and “Action of Management Committee” memoranda with the CBE participants to joint ventures that were not disclosed to the District of Columbia during the contract procurement process.  As a result, the company admitted, both Forrester Construction and the CBE partners failed to follow the required CBE rules and regulations.

The resolution was announced by Ronald C. Machen Jr., U.S. Attorney for the District of Columbia; Andrew G. McCabe, Assistant Director in Charge of the FBI’s Washington Field Office; Daniel W. Lucas, Inspector General for the District of Columbia, and Peggy E. Gustafson, Inspector General of the U.S. Small Business Administration (SBA-OIG).

The announcement concludes a two-year investigation into Forrester Construction, a firm based in Rockville, Md., as well as its CBE partners on the joint venture projects.

The investigation into the actions of Forrester Construction (Forrester), one of the largest interior construction firms in the DC area, culminated in and was resolved under a Non-Prosecution Agreement (NPA) between the U.S. Attorney’s Office for the District of Columbia and Forrester.

This case is one of the latest examples of aggressive law enforcement efforts to protect the integrity of programs, such as the CBE program, that are designed to help small, disadvantaged businesses gain access to government procurement markets. To qualify for certification as a “certified business enterprise “ under the District of Columbia’s (District) CBE program, a company must meet the requirements of one or more of the following categories: local business enterprise, small business enterprise, disadvantaged business enterprise, local business enterprise with principal offices located in an enterprise zone, veteran-owned business enterprise, or local manufacturing business enterprise.

The CBE program gives bidding advantages to District businesses and to joint ventures controlled by such businesses. A joint venture is eligible for the maximum bidding advantage on a construction contract only if the District business is the majority, controlling partner; will do a majority of the joint venture work; and will receive a majority of the profits under the contract.

According to the Statement of Facts agreed to by the company, between 2008 and 2009, Forrester formed multiple joint ventures in order to bid on construction contracts in the District. Joint ventures formed by Forrester Construction and CBEs were awarded contracts from the District totaling over $100 million. The investigation showed that Forrester and the CBE repeatedly represented to the District that the CBE was the majority partner of the joint ventures. In reality, however, Forrester and the CBE would enter into side deals—memoranda or letter agreements–which provided that Forrester would receive the overwhelming share of the contract work and the profits.  By securing these bidding preferences under the CBE program, Forrester and its CBE partner won at least three construction contracts that the District would otherwise have awarded to other bidders.

In the Press Release, the SBA Inspector General is quoted as follows:

“These joint ventures principally served the interests of Forrester Construction Company to make money and obtain contracting opportunities otherwise unavailable to them . . . . Joint ventures involving SBA program participants should be structured and executed to give small businesses an opportunity to gain experience and technical knowledge and to further develop their business.”

A quotation in the Press Release from the Inspector General of the District of Columbia highlighted the cooperative nature of the investigation and a commitment by law enforcement to continue investigations into abuse of procurement laws:

“The agreement to settle this criminal investigation demonstrates this Office’s commitment along with our federal partners, the SBA-OIG, the FBI, and the United States Attorney’s Office, to ensure that businesses which receive District of Columbia government contracts and participate in programs designed to help small and disadvantage [sic] businesses, like the District’s CBE program and the federal SBA 8(a) program, are expected to comply fully with program requirements.”

If this long-term investigation and negotiated resolution scenario makes you cringe in fear and loathing, it should. It resulted in Forrester Construction’s payment of a large sum of money to the feds, internal corporate remediation and compliance measures that are subject to independent review and oversight, and continuing cooperation with law enforcement. Prudent surety professionals and their contractors should be knowledgeable about proper procurement relationships and avoid improper procurement practices that could land the contractors in very hot water.

Attend the NASBP June 11 Federal Construction Contracting Seminar to Learn How to Advise Your Clients about Proper Procurement Relationships
 
In recognition of the need for education on procurement dos and don’ts and on the creation of proper relationships in the federal construction arena, NASBP is offering a one-day, intensive seminar that will explore these hot critical issues in federal construction contracts: “Creating a More Perfect Union? Relationships That Work and Those That Don’t in Federal Construction Contracts.” This program will be offered in Washington, DC, on June 11, 2015, the day following NASBP’s Legislative Fly-In. The Seminar registration fee is $395 and will include a continental breakfast and a luncheon. If you plan to attend the NASBP Legislative Fly-in the day before, you can receive a $195 discount on the seminar registration fee, that means your seminar registration fee will be $200.

Attendees will learn how this new regulation will have huge implications for small and large contractors. It will explore hot issue federal contracting topics. SBA proposed rules, published on February 5, 2015, would make the SBA mentor-protégé program available to all small business concerns, including Service-Disabled Veteran-Owned Small Business concerns, HUBZone businesses, and Women-Owned Small Business concerns, in addition to current 8(a) participants.

Among many other changes, the proposed rule would amend the definition of what constitutes a joint venture for all of SBA’s programs, including the requirement that all joint ventures must be reduced to a written agreement. And, while the SBA proposed rules may be modified by commentary received during the public comment period, the SBA has been charged by Congress through recent legislation to establish a mentor-protégé program for all small business concerns and to protect the interests of small businesses and increase opportunities in the federal marketplace. Unquestionably, the federal construction procurement landscape is poised for a seachange.

It is critical that bond producers, company surety professionals, and large and small contractors and subcontractors, in order to remain competitive in the federal marketplace, become knowledgeable about these changes. This NASBP seminar will provide this important information and the analytical tools to help attendees weather and thrive in the new environment.

The seminar will consist of these major components:

NASBP is proud to announce that attorneys from the national construction and government contracts law firm of Peckar & Abramson will provide most of the presentations at the seminar. Other speakers will include representatives from the Small Business Administration and the Department of Justice.

Calendar the date—Thursday, June 11 (8:00 a.m. to 3:00 p.m.)—for this important federal construction seminar. Registration details and the seminar schedule will be forthcoming in the next few weeks. Remember that registered NASBP Legislative Fly-in attendees can deduct the Fly-in registration fee from this Seminar registration fee. Plan to attend both critical events to realize a discount and to learn about crucial developments impacting your and your clients’ businesses.