Jan 3, 2018

By Tyler Freiberger 

In 2016 alone, the federal government spent $58.8 billion with minority or woman owned small businesses and another $16.3 billion with businesses run by disabled veterans. The vast majority of these prime contract awards were specifically not the result of open market, merit based competition. Rather, it was the result of the government openly steering more government dollars toward groups otherwise disadvantaged in society.  While there is some debate over the effectiveness of some of these programs, it clearly gives billions of reasons for the disadvantaged to start a small business and get a leg up on work with the government.

A great gig if you can get it, right? So great, non-qualifying persons and companies are willing to defraud the government to take advantage of these programs. The methods for this crime can be very simple; some programs allow contractors to self-certify as disadvantaged small business with no third-party review. Contractors can simply falsely certify disadvantaged status and move ahead.  In contrast, some schemes require greater complexity; winning the award with a company owned by a qualifying person but then funneling the money and the work through a series of other non-qualifying entities. A recent string of high-profile arrests and seizures shows this may be a surprisingly large portion of the awards set aside for disadvantaged or veteran owned business.

In October of 2017, four men plead guilty to participating in such a scheme to obtain construction contracts in South Carolina. According to the DOJ, for over a dozen years “the defendants hid the fact that construction companies were not controlled by minorities, veterans, women or the disabled in order to receive the lucrative contracts.” While the contracted work was performed properly, the scam took in over $350 million intended for minority or woman groups.

A similar action is developing in Milwaukee, where the government has begun seizing the assets of a contractor they suspect has won almost $300 million in construction contracts meant for minorities and military veterans. The fact these frauds were ever discovered is almost as shocking as the amounts. Both examples involved minorities, women, or disabled veterans falsely claiming they owned a business in order to receive the government’s favor. However, the businesses were instead run by a spouse or friend that took the lion’s share of the profits. Without an insider blowing the whistle on this type of intimate activity, it is difficult to imagine how the government could ever detect it.

In the above examples, one contractor is facing two years in jail, while the other has had his home and cars seized pending criminal charges. All this despite government agreement that the contracts were performed well, even some with honors. Regardless, this post-harm punishment seems to be the government’s only option for deterrence and is therefore justifiably harsh. The Small Business Administration works with the Justice Department to detect such abuse, but still primarily relies on reporting by whistle blowers or competitors. Until a more robust system of detection is organized, we will likely never truly know how big of a problem this fraud is.


About the Author:

Tyler Freiberger Headshot | Centre Law & Consulting in Tysons, VA Tyler Freiberger
Associate Attorney

Tyler Freiberger is an associate attorney at Centre Law & Consulting primarily focusing on employment law and litigation. He has successfully litigated employment issues before the EEOC, MSPB, local counties human rights commissions, the United States D.C. District Court, Maryland District Court, and the Eastern District of Virginia.



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  • Karen Kipper says:

    Why is it that All Government Backed programs that are supposed to Help those “in need” or “qualify for” assistance always get “hacked” or taken advantage of, which in turns, causes Everything to go bad for the ones who use these opportunities for what they are meant?!?! Where is the QA behind these programs to Avoid this kind of mishap? The money the government lose on funding these types of beneficial programs, they could be providing some deserving people jobs in their QA and/or Risk departments!

  • L. Hall says:

    This is interesting because in Michigan we have been having a problem with the nationally respected 3rd party minority certifying agency refusing to certify legitimate 100% minority-owned and operated companies, so we must rely on the government self-certify to show minority-owned status. They even went as far as to certify some for one year then refuse to renew the certification the following year giving no reason for not re-certifying. One end of the spectrum non-qualifying companies are self-certifying falsely and on the other end legitimate qualifying companies can’t get a fair 3rd party verification. This is a big problem.

  • Rickie Day says:

    I believe the small business administration needs to cut back and eliminate the small disadvantaged set aside it’s nothing more than reverse discrimination Caucasian owned small businesses no longer can compete in the market and more and more contracts are being set aside small disadvantaged and those are not satisfied and appears that the government is more into bundling small contracts in too much large contracts with a small business can’t afford to start up cost it’s time something is done to stop this type of abuse it’s costing the taxpayers of this country billions of dollars each year

  • Gene DeAtley says:

    It is incredible to me how this fraud can possibly take place. We, my SDVOSB, was put through two years of intense scrutiny before we were certified. In a way I am glad it took so long with such scrutiny to become certified but, then again, why were some able to fraudulently obtain certification? Those of us who have been put through the certification ringer do not see how it is possible.

  • Michael Netherly says:

    I am a masonry and concrete company based out of Lakewood, Colorado. We have recently been certified as a VOSB and want to start bidding on Gov contracts. Would you know of any financial resources, etc. that could help get us going in this market please?

  • Bob Perkins says:

    Thanks for your article Tyler. My wife and I are Vietnam vets. We own all of a small company.
    Have been in business since 1983. Profitable and a sub S corp. I did j30 yrs active and Reserve. My wife did 2 yrs. I’m 100% disabled…have a letter stating that from Sec. VA. Wife has 10%.
    We have our tax returns. We only have a few employees (5-6 now).
    There can be not doubt that we run the Co. and that we are Disabled… yet the CVE and VA don’t recognize our Co. as a SDVOB… It is obvious we are a SDVOB.
    Am wondering why the VA can’t work out some kind of on site interview and verification with tax records, customer interviews and letters, tax returns and employee interviews to show we are the owners ( 100% of stock), and make the day to day decisions and actually run the business.

    Mr. Thomas J. McGrath is head of the CVE. They need to work on simplifying the process.
    Are you guys working on any of that or do you have any recommendations… There is a heck of a lot of paper work and it seems to take an eternity to get approved… When it is so obvious we are 100% qualified as a SDVOB. Wonder if I should send him my Purple Heart?