False Claims Act Applies to Minority-Owned Business Set Asides

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When I speak with people who are unfamiliar with the False Claims Act, one theme that I try to emphasize is the Act’s flexibility and broad remedial purpose. The False Claims Act has been repeatedly interpreted to apply broadly to all types of fraud committed against the government. In many ways, the scope of the Act is only limited by the imagination and creativity of relators’ counsel.

Although it is not the first time, the Department of Justice recently reminded us just how sweeping the Act can be when it settled a case against TesTech, Inc., and its owners relating to set asides for “disadvantaged business entities” in transportation project contracts. Link Here: Link

Numerous government contracts, including in the transportation and defense sectors, include set-asides for business entities owned by minorities or women and require prime contractors to use good-faith efforts to find subcontractors owned by minorities or women for a certain portion of the work. The purpose of these programs is to foster and encourage business ownership by populations that have historically been excluded from such positions.

There are many possible ways to knowingly violate these programs, including falsely reporting ownership status, misleading the government about the nature of the work performed by the entity, or using the disadvantaged business entity merely as a pass-through shell that performs no actual work. In the TesTech, for example, the real owners of the company falsely asserted that it was owned by a minority in order to qualify the company for the disadvantaged business program.

Under the settlement, TesTech will repay the government almost $3 million in fraudulently obtained funds. As is more often than not the case, the suit was initiated by a former employee of TesTech, who will receive just over a half million dollars under the False Claims Act’s qui tam provisions.