Short Take: Another Failed Scheme Alleging Work Performed By Minority Owned Business
November 30, 2015
By: Lindsay Simmons
Last week Granite Construction, Inc. (Granite), a publically traded company, entered into a non-prosecution agreement under which it will pay more than $8 million to the federal government and the Metropolitan Transportation Authority (MTA). The agreement resolves a criminal investigation into a disadvantaged business enterprise (DBE) fraud scheme perpetrated by Granite’s wholly-owned subsidiary, Granite Construction Northeast, Inc. (GCN).
The facts are relatively straightforward. GCN was the prime contractor on a transit project contract awarded by the MTA, under which GCN was paid well over $200 million. The contract required GCN to comply with the DBE program, including subcontracting a percentage of the work to disadvantaged business enterprises. But that never happened.
Instead, GCN, along with a few other non-DBE companies and one DBE company that acted solely as a front, conspired to arrange the following scheme:
(a) GCN would award a subcontract to the DBE front company worth approximately 10% of the total prime contract value ($22 million), to perform certain construction work;
(b) GCN and other non-DBE companies would perform the specified construction work, but payroll would be “run through” the DBE front company, with paperwork arranged to make it appear as if the DBE front company was performing the specified work; and
(c) GCN would pay the DBE front company a $500,000 “DBE fee,” even though the front company would not perform any “commercially useful functions”, as required.
As required, GCN submitted periodic progress reports to the MTA that purported to represent the percentage of work performed by DBE companies on the prime contract. In these reports GCN falsely represented that the DBE front company had performed work, when the specified work had been performed by non-DBE companies, and the front company had not performed any “commercially useful function” whatsoever.
The only bright spot for Granite in this case is that, because of (i) the comprehensive internal investigation Granite conducted, (ii) Granite’s acceptance of responsibility for GCN’s unlawful conduct, (iii) Granite’s cooperation with the government, (iv) the discharge of the GCN employees responsible for the unlawful conduct years before the government’s investigation began, and (v) Granite’s extensive remedial measures, the government agreed not to prosecute Granite or GCN.
“GCN defrauded the MTA by falsely claiming that millions of dollars’ worth of construction work was performed by a DBE company,” reported the Department of Justice. However, the resolution “recognizes Granite’s decision to timely accept full responsibility, provide complete cooperation, and take remedial measures to enforce best industry practices,” stated the U.S. Attorney.
Lindsay Simmons is responsible for the contents of this Short Take.
© Jackson Kelly PLLC 2015