Legal Meets Practical

Last week, I promised a two-part blog covering the recent False Claims Act lawsuit filed by the U.S. Government against a corporation and associated individuals for a rent-a-vet-scheme. This article continues it, but I wanted to begin by informing my readers that as of last week, Undersecretary for Benefits, Alison Hickey, resigned. This comes in the wake of a scandal relating to VA executives reaping hundreds of thousand dollars in relocation fees (for positions arguably created by them, for them). A Congressional hearing is scheduled in the near future, with five VA employees subpoenaed to appear. This isn’t something I want to cover in detail, but it’s important enough to pass on.

On to Part II of last week’s cautionary tale. In the case detailed, non-veterans approached a veteran with a full-time job elsewhere, installed him as the President of a corporation, and proceeded to pursue and win $24 million in service-disabled veteran-owned small business (SDVOSB) set-aside contracts while knowing the corporation was ineligible for the work. The U.S. Government is seeking damages for multiple counts of false claims, common law fraud, and unjust enrichment (the latter not discussed here). U.S. v. Strock Contracting, Inc., et. al. (1:15cv00887).*

The purpose of this blog is to explain exactly how much trouble you can get in for a scheme like this. Unlike with commercial contracts, government contracts are subject to a number of laws that carry civil and criminal penalties. (If you attempt to defraud the federal government, it gets very, very mad. Just in case that isn’t already abundantly clear.).

Count I of the Complaint accuses the defendants of violating the False Claims Act (FCA) by presenting false or fraudulent claims for payment. A “false claim” occurs every time an ineligible company knowingly asks for payment under an SDVOSB set-aside. Think of how many invoices one submits during the life of a contract.

Count II of the Complaint accuses the defendants of violating the FCA by making or using a false record or statement. These false claims occur when a non-eligible corporation (knowing it is not eligible) seeks verification for set-asides with the VA (by going through the verification process), self-certifies on SAM, and bids on contracts.

Count III  of the Complaint alleges conspiracy to violate the FCA by conspiring to submit or causing to be submitted a false claim or statement. A conspiracy claim would apply to any person who participated in a scheme – the folks who gathered the information for VetBiz submission, who hid the veteran’s non-involvement in the corporation from contracting officials. . . This means that you can be liable if you are an employee who goes along with a scheme, knowing it’s wrong.

Count IV of the Complaint is for common law fraud, which is generally a very difficult claim to prove. To be liable for fraud, one must make a misrepresentation of material fact, which someone else relies upon in acting. Here, the fraud is tied to the corporation claiming to be an SDVOSB, which was material to it obtaining contracts.

Did you notice how all of these claims are tied to the same sequence of events/scheme? This kind of endeavor puts a corporation at significant risk for treble damages, criminal penalties, high civil penalties, etc, because each invoice submitted, email sent, and bid submitted, can be a separate violation. Accordingly, if you have any question as to whether what you are doing is legal, seek out proper advice. Even if it’s an honest mistake, “I didn’t know any better” won’t work against the federal government for many types of regulatory violations (At least with the FCA, you have to act knowingly).

This cautionary tale continues. The Complaint was filed on October 7, and from the history in the Complaint, it appears the Parties were in negotiations and discussions for quite some time prior to that. I’ll cover this case more, as the situation warrants, so stay tuned…

*The facts set forth in the Complaint and here are allegations only; liability is yet to be determined.

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Kids these days…

A Minnesota college student has invented an app that prevents night terrors after witnessing his father, an Iraq war veteran, struggle with them himself.

Macalaster College senior, Tyler Skluzacek, was in the sixth grade when his dad, Sgt. First Class Patrick Skluzacek, was deployed to Iraq. When he returned home, he displayed classic symptoms of post-traumatic stress disorder, including night terrors.

In September, Tyler entered a 36-hour coding contest called HackDC, the theme of which was helping veterans. He and his team created a top prize-winning smartwatch app called myBivy.

The app tracks an individual’s heartbeat and movements in order to detect when night terrors are about to occur. The owner’s smartwatch or smartphone will then use sound or vibration to bring its user out of the deepest cycle of sleep and prevent night terrors while allowing them to remain asleep.

“After a couple weeks of tracking the soldier, we can find the exact symptoms of the onset of the panic attack and try to use the watch or use the android phone to disrupt that or take them out of the deep sleep, but keep them asleep,” Tyler explained in an interview to People magazine. (Yes, that is not normally a source of my information, but I felt Tyler’s efforts to help vets like his father deserved kudos).

Tyler’s team won $1,500 through HackDC to continue their work on the app, and they’ve also raised an additional $10,577 on Kickstarter (and climbing…with an original goal of $1,194). The team has been working with the VA and sleep experts and hopes to bring the app to clinical testing by next spring.

Given that in the U.S. alone, around 3.6 million veterans are diagnosed with PTSD, let’s hope they raise however much they need to maximize the app’s effectiveness. If you want to donate to the cause, click here. (Legal Meets Practical, LLC has no connection with Tyler or his team in any way).

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On October 7, the U.S. Government filed a civil complaint* against a company for damages and civil penalties arising from false claims made in connection to SDVOSB status. The Complaint is one worth looking at, because it gives a complete and comprehensive rundown of what, exactly, can happen if one goes the rent-a-vet route. It is a cautionary tale for every SDOVSB competing in the federal arena.

The Complaint alleges that from 2008 through 2013, the Defendants – consisting of an SDVOSB and three individuals, manipulated the SDVOSB Program and the Veterans First Contracting Program in obtaining $24 million in SDVOSB set-aside contracts. (U.S. v. Strock Contracting, Inc., et. al., 1:15cv00887). In a nutshell, in 2006 they created a corporation, Veteran Enterprises Company (VECO), and appointed a service-disabled veteran as its President and 51% owner. At the time the individual was courted as the “veteran owner,” he worked full-time as a New York State Parole Officer, a position he held through 2013. The Defendants assisted VECO in obtaining its SDVOSB certifications (both self-certifications and through the VA), despite knowing that it did not meet the necessary criteria.

After VECO obtained its certifications, it successfully competed for a number of SDVOSB set-aside contracts. As set forth in the Complaint, during the next few years, the service-disabled veteran did little but sign the contracts and proposals presented to him (because, as anyone in the VetBiz registry knows, one element the VA scrutinizes is whether the veteran is signing these documents). He also acted as a figurehead in attending the pre-award and post-award meetings held by the contracting agencies, and performed inspections.

According to the Complaint, the service-disabled veteran earned a small portion of the monies reaped by this scheme, with Strock and the associated individuals reaping the vast majority of profits. In fact, he even earned less than the 5% he was promised. (This flies in the face of the regulatory requirements that the veteran be the highest-compensated employee).

In general, the Complaint states that: “[b]y diverting contracts and benefits therefrom intended for service-disabled veterans towards an ineligible company, defendants undercut the purpose of statutorily created programs to encourage contract awards to legitimate SDVO small business.” It goes on to provide a rundown of the eligibility requirements set forth by both the SBA’s SDVOSB Program, and the VA’s Veterans First Contracting Program. Its five Counts accuse the defendants of violating the False Claims Act by: presenting false claims, making or using a false record of statement, and conspiring to submit/cause to be submitted a false claim or to make or use a false record or statement; as well as committing common law fraud and being unjustly enriched. It seeks millions of dollars from the Defendants, including treble damages associated with the false claims.

Because the Complaint comprehensively addresses the grounds for each claim, it’s helpful to understand what you’re not allowed to do. Stay tuned next week for a more detailed analysis (which you, hopefully, will never need. But if there’s ever a question…).

*This matter is yet to be adjudicated, and liability determined.  All facts set forth in this article are taken from the allegations made in the Complaint, which have yet to be determined as true.

Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog at: https://legalmeetspractical.com. Also, Legal Meets Practical is now on Twitter!

On Wednesday, President Obama signed a bill to fund the government through December 11, averting a shutdown and giving lawmakers about 10 weeks to negotiate a longer-term budget solution.

The 2016 fiscal year began on Thursday (October 1), and federal agencies would have had to furlough thousands of government workers if not for this last-minute reprieve.

As many of you may remember, the last government shutdown went on for 16 days in 2013 and cost the U.S. economy about $24 billion (especially since many government workers were paid administrative leave for doing nothing, not to imply this was their fault in any way).

The push by Republicans to defund Planned Parenthood threatened a government shutdown. When it came down to the wire, however, and Democrats continued to block the provision, Republican leaders removed it to let the bill pass. The House did pass a separate resolution to defund Planned Parenthood, but this was more of a statement than anything else – the resolution will not be taken up by the Senate.

So, as a government contractor, what do you need to know about shutdowns? We averted the issue this time, but in ten weeks, we might not be so lucky. Be prepared by reviewing these five tips:

• Know what gets shut down. TheAntideficiency Act governs how a shutdown works. It says agencies can’t obligate funds or contract work without appropriations. Agencies are also prohibited from accepting volunteered services.There are exceptions where contractors can continue to work, including emergency risks to property or human health, such as a hurricane. Agencies funded on multi-year appropriations or no-year appropriations can also remain open, leaving contractors some options, depending on what the agency projects they may be working on.

• Befriend your contracting officer. In theory, the contracting officer should be the person with access to the most accurate information relating to your contract(s). Don’t be shy about reaching out to him or her about the status of your contract(s); however, be cognizant of the fact that your contracting officer is undoubtedly stressed and may be dealing with other folks who are less than happy. You know the old saying – more flies with honey.

• Don’t stop working until you get a stop work order. We know how it works in government contracting. Don’t stop performing under your contractual obligations until you get your order in writing. If there is any ambiguity, email your contracting officer (for the paper trail) about status and document any conversations you have with him or her in an email later sent (to clarify your discussions, confirm what you’re doing, etc).

• Document everything. Document everything you do in a government shutdown, particularly those expenses occurred after a stop work order is issued. The government reimburses certain expenses incurred in government shutdowns.

• Know your risk. Especially for small businesses doing business with the government, time is money. If you’re doing one thing, you can’t do something else. If you work in construction and take on a commercial project while you are in limbo with the government, know that the government shutdown might end any day. Also, if you incur unforeseen costs because of a shutdown, such as having to cancel conferences and other events, some can be reimbursed through the government’s policy on equitable adjustment.

Thank goodness no one needed to use these tips this time around. But in 10 weeks, if a longer-term budget solution hasn’t been reached, you might need to dig this article up.

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