ALBANY, NEW YORK – Northland Associates, Inc. (Northland),
its president James Tyler, The Diverse Construction Group, LLC (Diverse), and
their bonding agent, Rose & Kiernan, Inc., have agreed to pay the United
States $4,470,000 to resolve allegations that they fraudulently exploited
contracting opportunities reserved for veteran-owned small businesses and small
businesses operating in historically underutilized business zones (HUBZones),
announced United States Attorney Grant C. Jaquith.
“We are committed to curtailing corruption by contractors
who take opportunities set aside for small businesses owned and operated by
injured veterans,” said United State Attorney Jaquith. “We owe no less to those who sacrificed their
own well-being for our safety and security.”
The United States has long used government contracting to
promote small businesses owned by veterans who have service-connected
disabilities and small businesses operating in economically distressed
communities. To be eligible for these
contracts, an applicant must first qualify as a small business. To qualify, the business must report to the
U.S. Small Business Administration (SBA) its total income and employees along
with the income and employees of any affiliates. Generally, federal regulations provide that
companies are affiliated when one business has the power to control another, or
when a third party has the power to control both businesses. When two companies are affiliated, and
together exceed the income and employee limitations, neither will be eligible
for small business set-aside contracts.
The settlement with Northland, Diverse, and Tyler resolves
allegations that those parties orchestrated a scheme to secure government
set-aside contracts for Diverse and subcontracts for Diverse’s undisclosed
affiliate, Northland.
Diverse was 51% owned by a service-disabled veteran and 49%
owned by senior Northland officials.
Northland exerted influence over Diverse in various ways, including by
maintaining a “bid calendar” with deadlines for upcoming Northland and Diverse
contracting opportunities, staffing Diverse with former Northland employees,
and funneling Diverse subcontracts to Northland for fulfilment. Northland also handled various administrative
duties for Diverse, including its accounting, expediting, estimating,
purchasing, contracting, and clerical work.
Witnesses recounted moving boxes of files from Northland’s
Liverpool, New York office (which was not located in a HUBZone) to Diverse’s
office in Plessis, New York (which was located in a HUBZone), to make the
Plessis office appear operational for government inspections. When the SBA questioned the parties’
affiliation in 2009, Tyler and Diverse’s 51% owner submitted sworn declarations
that misrepresented the relationship between the two companies. Shortly thereafter, Diverse funneled more
than $1 million to Northland through a Northland subsidiary in an effort to
hide the parties’ affiliation.
Northland, Diverse, and Tyler admitted that their conduct violated
federal regulations designed to encourage contract awards to service-disabled veteran-owned
small businesses and small businesses operating in HUBzones.
Contractors bidding for federal government construction
contracts are generally required to post performance bonds and payment bonds,
and the bonding company is required to ensure that the contractor will perform
the work. Rose & Kiernan is an
insurance and surety brokerage that acted as a bond broker for both Northland
and Diverse on government construction projects. David Cooper is a senior vice president with
Rose & Kiernan. The settlement with
Rose & Kiernan and Cooper resolves allegations that those parties knew or
should have known that Diverse and Northland were affiliated in violation of
SBA regulations and that those companies took steps to hide their affiliation
from the government to obtain and receive payment on government set-aside
contracts. Their decision to help
Diverse obtain bonding was a critical action in furtherance of Diverse’s and
Northland’s fraud on the government, and served as a substantial factor in
causing Diverse to submit false claims for payment to the United States.
“Providing false information to gain access to SBA’s
preferential contracting programs is fraught with peril and is especially
egregious when it involves programs intended to benefit our nation’s
service-disabled veterans,” said SBA Inspector General Hannibal “Mike”
Ware. “SBA-OIG will always aggressively
pursue allegations of wrongdoing against individuals that provide false
information. I want to thank the
Department of Justice for their dedication to this case resulting in this
settlement.”
SBA’s Associate General Counsel for Litigation, Eric S.
Benderson, said: “The result in this case is the product of enhanced efforts by
federal agencies, such as the Small Business Administration working with the
U.S. Attorney’s Office and other Federal law enforcement agencies, to detect
procurement fraud, pursue those individuals and companies that engage in
fraudulent activities and protect the integrity of the program.”
“Ensuring the integrity of the DoD procurement process is a
top priority for the Defense Criminal Investigative Service (DCIS),” stated
Special Agent in Charge Leigh-Alistair Barzey, DCIS Northeast Field
Office. “The successful resolution of
this case is the result of a joint investigative effort and demonstrates the
DCIS’ commitment to work with the U.S. Attorney’s Office for the Northern
District of New York and its law enforcement partners to identify and prosecute
individuals and companies that seek to defraud U.S. government contracting
programs.”
“The Department of Veterans Affairs Office of Inspector
General remains vigilant in its efforts to bring individuals and companies to
justice that misappropriate the opportunity afforded exclusively to our
nation’s veterans to obtain these VA set-aside contracts,” said VA-OIG Special
Agent in Charge Christopher F. Algieri.
“The VA-OIG will continue to protect the integrity of this important
program, and thanks the U.S. Attorney’s Office and our law enforcement partners
in this collaborative effort.”
“Those who contract with the United States government must
do so fairly and honestly,” said Douglas Shoemaker, Regional Special
Agent-in-Charge of the U.S. Department of Transportation, Office of Inspector
General. “Today’s settlement clearly
signals that it is not acceptable for contractors to unscrupulously take
advantage of Federal programs created to enhance opportunities for small
disadvantaged businesses.”
As part of the settlement agreements, Northland will pay
$2,125,000, Tyler will pay $2,125,000, Diverse will pay $100,000, and Rose
& Kiernan has paid $120,000.
The government’s investigation was triggered by
whistleblower lawsuits filed under the qui tam provisions of the False Claims
Act, which allows private persons, known as “relators,” to file civil actions
on behalf of the United States and share in any recovery. The relators in this case will receive
$1,000,000 of the settlement proceeds that the government receives from
Northland, Diverse, and Tyler. The cases
are docketed with the U.S. District Court for the Northern District of New York
under numbers 5:17-cv-036 and 5:18-cv-516.
The investigation and settlements were the result of a
coordinated effort among the U.S. Attorney’s Office for the Northern District
of New York, SBA-OIG, VA-OIG, DCIS, DOT-OIG, and the U.S. Army Criminal
Investigation Command. The United States
was represented by Assistant U.S. Attorneys Adam J. Katz and Christopher R.
Moran.