According to a criminal information filed in the U.S. District Court for the Eastern District of Pennsylvania, still another fraud scheme involving the U.S. Department of Transportation’s disadvantaged business enterprise (DBE) Program has been uncovered on two different federally-funded projects in Philadelphia.
In September 2009, PennDOT awarded a $70.3M contract to a tri-venture consisting of a Philadelphia-based highway contractor, Alpha Painting & Construction Co., Inc., of Baltimore, and Liberty Maintenance, Inc., of Campbell, Ohio, to perform structural steel painting and repairs, and concrete repairs, on the I-95 Girard Point Bridge in Philadelphia. As part of the contract, the tri-venture committed to subcontract $4.7M of work to Markias, a now-defunct certified DBE, to supply materials for use on the the contract. Alpha and Liberty formed a joint venture and allegedly ordered the needed materials directly from non-DBE suppliers, and allegedly used Markias as a pass-through to give the appearance that the DBE requirements had been satisfied. PennDOT awarded approximately $3.26M in DBE credit to the tri-venture based on the DBE work allegedly performed by Markias.
In December 2010, PennDOT awarded a $50.8M contract to a joint venture to perform structural steel painting and repairs and roadway reconstruction at AMTRAK’s 30th Street Station in Philadelphia. The joint venture subcontracted with the Alpha-Liberty JV for $15M to perform the structural steel painting beneath 30th Street Station. As part of the bid process, the joint venture had committed to subcontract $1.7M in DBE work to Markias for the supply of paint materials on the 30th Street Station project. Instead, the Alpha-Liberty JV allegedly ordered the needed materials directly from non-DBE suppliers, and again allegedly used Markias as a pass-through to give the appearance that the DBE requirements had been satisfied.
In addition, the Alpha-Liberty JV ordered materials to be used on out-of-state projects while allegedly directing that the purchase invoices be sent to Markias in New Jersey. The owner of Markias then allegedly issued false invoices to show that the supplies had been used on the 30th Street Station project. The Alpha-Liberty JV then allegedly caused the joint venture to falsely report to PennDOT that the supplies delivered to and used on the out-of-state projects qualified for DBE credit in Pennsylvania. PennDOT awarded approximately $1.275M in DBE credit to the joint venture on the 30th Street Station project.
The owner of Markias has now been charged by the U.S. Attorney’s Office for the Eastern District of Pennsylvania with conspiracy to commit wire fraud. The U.S. Attorney’s Office press release on the charges can be found here. The U.S. DOT Office of Inspector General press release can be found here.
If true, this latest case is yet another example of the fraud that is apparently commonplace within the US DOT DBE program in Pennsylvania and elsewhere.
If you are a prime contractor bidding on a federally-funded transportation contract, and you truly cannot find a qualified and competent DBE to perform work on your contract, don’t resort to a pass-through scheme to satisfy the DBE goal; instead, if you don’t meet the DBE goal, document your efforts to meet the DBE goal and fight for the contract award if you are the low bidder. Remember that a low bidder cannot be denied a contract award merely because it did not meet the DBE goal provided that it has demonstrated “good faith efforts” to meet the DBE goal.
If you need assistance in this complex regulatory area, call or email me for a free consultation.
Christopher I. McCabe, Esq.
