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Cooking Up Trouble: Record $48.5 Million Settlement in Foodservice Equipment Government Contracting Fraud Case
Thursday, April 21, 2022
Improperly obtaining contracts that are meant for service-disabled, veteran-owned businesses—and concealing it—is not a recipe for success in government contracting. The United States Department of Justice settled a case against a foodservice and restaurant equipment supplier. Under the terms of the settlement, the contractor paid $48.5 million, the “largest-ever False Claims Act recovery based on allegations of small business fraud,” of which $21.6 million is restitution. Additionally, a former executive who managed the foodservice company’s government contracts, was fined $100,000 as an individual civil penalty. The whistleblower was a company called Fox Unlimited Enterprises, LLP. For reporting government contracting fraud, the relator received 22.5% of the settlement, just over $10.9 million.
According to the settlement agreement, three related foodservice government contracting companies played puppet master to several service-disabled, veteran-owned small businesses (SDVOSB) in order to access contracts set aside for these types of small businesses. TriMark USA, its wholly-owned subsidiary Gill Group, and an unincorporated division called Gill Marketing offer various types of foodservice equipment, restaurant equipment, and supply services to corporations and government installations. Gill Marketing worked with four economically-disadvantaged small businesses at various points during 2013-2021 to obtain set-aside government contracts forwhich Gill Marketing was not otherwise eligible.
According to the allegations, Gill Marketing identified opportunities and coached the companies what to put in their bids. Gill Marketing’s reach included “ghostwriting” emails from the small businesses to the government about the contracts, which the small businesses sent to make it appear as if they were completely managing the work performed, when in fact Gill or TriMark was. In several instances, Gill Marketing or Trimark USA performed over 90% of the work in a contract, with the small businesses receiving a small percentage of the contract value. At least one Gill Marketing employee misrepresented themselves as an employee of one of the small businesses in an email to a government official, requesting an opportunity to submit a revised bid on a contract. When one of the small businesses raised “concerns” about their relationship with Gill Marketing, including pointing out both contractors’ exposure to False Claims Act liability, a Gill Marketing employee “stated that the sender should ‘calm down and enjoy your weekend.’” For gobbling up contracts intended for legitimate small businesses, this foodservice contractor’s goose is cooked.
The federal government “sets aside” contracts for various types of small businesses, including women-owned, small disadvantaged and 8(a), historically underutilized business zones (HUBZone), and service-disabled veteran-owned small businesses, with the intention of “ensur[ing] small businesses get their fair share of work.” One common form of government contracting fraud is obtaining contracts through false statements on bidding documents. The U.S. Attorney for the Eastern District of Washington stated, “This case demonstrates a shocking disregard for fair competition, small business rules, and integrity in government contracting.”
Awarding contracts to businesses is how the federal government accomplishes projects that its agencies and departments alone cannot. The False Claims Act exists because fraudsters sought to circumvent the implied covenant of good faith and fair dealing in their contracts to furnish supplies and services to the federal government during the Civil War. Whistleblowers give the False Claims Act teeth to catch and punish fraudsters who seek to divert government funds into their own pockets.
© 2022 by Tycko & Zavareei LLPNational Law Review, Volume XII, Number 111