Washington Closure Hanford: Small-Business Credit for Someone Else’s Workers

Washington Closure Hanford agreed to pay $3.2 million to settle allegations that its subcontract-credit reports claimed small-business participation while another company performed the work. One subcontract alone was worth over $15 million. The Department of Energy reimbursed the prime contractor’s subcontract spending at Hanford. The government alleged that businesses presented as eligible subcontractors supplied their names while Federal Engineers and Constructors supplied the workforce. If you prepared the reports, approved subcontract changes or knew whose employees did the job, you may recognize the gap between the credit claimed and the work behind it.

The Justice Department announced the Washington Closure Hanford settlement on June 7, 2018. The case began with a whistleblower complaint from a Hanford-area small business and its owner. The United States joined the case, alleging false representations about who qualified for the subcontracts and who would perform them.

How Department of Energy Subcontract Credit Worked at Hanford

Washington Closure Hanford’s River Corridor Closure Contract tied reimbursement for subcontracting to a separate promise to pursue small-business participation. Between 2005 and 2016, the company was a Department of Energy prime contractor responsible for environmental remediation and cleanup of Hanford’s Columbia River Corridor. The department fully reimbursed hundreds of millions of dollars in subcontracts awarded by the company.

The contract required efforts to award a certain percentage of those subcontracts to small businesses and small disadvantaged businesses, including woman-owned small businesses. According to the government’s announcement of its complaint, failing to meet the requirements or make those awards in good faith could mean the Department of Energy withheld millions of dollars from Washington Closure Hanford.

That gave the subcontract-credit report financial weight. The report told the Department of Energy whether the prime was meeting a promise attached to the cleanup contract. The alleged subcontracting fraud put an eligible-looking business between Washington Closure Hanford and the company doing the work, then counted that arrangement toward the participation requirement.

The Subcontracts Behind the Credit Reports

The government’s complaint announcement described three subcontracts involving Phoenix Enterprises Northwest and Sage Tec. Each allegation connected Washington Closure Hanford’s claim for credit to the business actually performing.

Truck & Pup Credit After the Small Business Administration Determination

Washington Closure Hanford allegedly claimed more than $2.7 million in small-business credit for Truck & Pup subcontract modifications after agreeing not to claim any credit for that subcontract. The government’s account starts in May 2009, when the prime awarded the subcontract to Phoenix Enterprises Northwest as a small business.

The Small Business Administration determined that Phoenix was acting as a pass-through for Federal Engineers and Constructors, which did not qualify as a small business and was actually doing the work. According to the complaint announcement, Washington Closure Hanford agreed to leave the subcontract with those companies without claiming small-business credit, instead of putting it out for bids again.

Beginning in 2010, the government alleged, the prime nevertheless represented to the Department of Energy that it was entitled to credit for modifications.

We find it remarkable that Washington Closure Hanford allegedly put the credit back into its reports through contract changes after the government had already identified the company doing the work.

The 100 Area Workers Allegedly Stayed on Another Company’s Payroll

The 100 Area subcontract allegedly credited Sage Tec’s woman-owned small-business status while Federal Engineers and Constructors supplied the workers. Washington Closure Hanford awarded the subcontract in November 2010 and represented that Sage Tec would perform with the larger company as its teaming partner.

According to the government’s complaint announcement, Sage Tec had one employee, its owner. The government alleged that Washington Closure Hanford and Federal Engineers and Constructors knew Sage Tec would act as a pass-through, using the larger company’s employees who remained on its payroll. Sage Tec allegedly contributed its woman-owned small-business name to the project.

A name on the subcontract. Someone else’s workforce.

That is why payroll mattered to the woman-owned small-business fraud allegations. It connected the workers to the business employing them, while the prime’s representation to the Department of Energy placed performance with Sage Tec.

The 300 Area Subcontract Allegedly Repeated the Arrangement

The 300 Area subcontract allegedly repeated the Sage Tec arrangement. Washington Closure Hanford awarded it in October 2012, again representing that Sage Tec would perform with Federal Engineers and Constructors as a teaming partner.

The government alleged that Sage Tec still had only its owner as an employee and that both the prime and the larger subcontractor knew it would supply its woman-owned business name while Federal Engineers and Constructors performed the work.

What Is Small Business Fraud?

In the Hanford allegations, small business fraud meant claiming participation by qualifying businesses while a different, ineligible business performed the work. The prime’s reporting and the subcontractor’s operating role were different parts of the alleged arrangement: Washington Closure Hanford claimed the credit, Federal Engineers and Constructors supplied the work, and Sage Tec supplied the qualifying name.

The broader small-business eligibility question reaches ownership, control and performance. Certification alone does not tell us who ran the job. A subcontract identifying a teaming partner and a payroll identifying the actual workforce answer different questions, and the Hanford allegations depended on that difference.

The 2005 Contract Management paper Small Business Act Certification Fraud: Raising the Stakes describes miscertification as reaching affiliation, subcontracting, ownership, control, management and women-owned status. Its account puts the lost opportunity for eligible businesses plainly:

Small Business Act Certification Fraud: Raising the Stakes, Contract Management, 2005

That is also the injury the government described at Hanford. The U.S. Attorney’s Office described legitimate small disadvantaged businesses losing the chance to compete for and perform the subcontracts. A participation report can show credit against a goal while the business that goal was meant to help never gets the work.

The Court’s Damages Ruling and the Separate Settlements

According to the Justice Department’s final settlement announcement, the court ruled in August 2017 that damages could be measured by the full value of the Sage Tec subcontracts alleged to have been fraudulently obtained.

The settlements reached both the company allegedly doing the work and the business supplying the qualifying name. The final announcement says Federal Engineers and Constructors paid $2 million in September 2017, while Sage Tec and its owner paid $235,000 that same month. Washington Closure Hanford’s later agreement resolved the government’s allegations against the prime.

The Federal Engineers and Constructors settlement announcement alleged that the company performed substantially all the work on the Sage Tec subcontracts. The Sage Tec announcement addressed the company and its owner’s alleged role in obtaining those awards.

The Department of Energy Office of Inspector General and the Small Business Administration Office of Inspector General investigated. The U.S. Attorney’s Office for the Eastern District of Washington prosecuted the civil case.

What a Subcontract-Credit Report Can Show

A subcontract-credit report becomes more revealing when it is connected to the award, the workers and the payments. In the Hanford allegations, the report said which business deserved credit. Payroll and actual performance showed whose people carried out the work. The Small Business Administration’s determination and the prime’s alleged response supplied another part of the story: what Washington Closure Hanford already knew.

Procurement, operations and accounts staff may each see a different part of that arrangement, and we work with you to connect those parts to the alleged false reporting.

We examine the records connecting the representation to the government payment, including which business controlled the work and what each subcontracting tier actually contributed. The useful comparison is specific to the award: what participation the contract called for, what the report claimed and what the businesses did.

The Hanford case began with knowledge held by a small business outside the prime contractor. A competitor or subcontractor may understand the operating arrangement behind a credit report that looks complete to someone who has never seen the job. That knowledge is where our work with you starts.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Whose People Did the Work

If the subcontract-credit report tells a different story from the job you know, talk with our whistleblower experts about the report and the real performer. We work beside you to build your strongest government procurement fraud whistleblower case and bring in government contracting whistleblower lawyers who understand small-business eligibility and subcontract reporting. We stay with you through the case, focused on who controlled the work, what the prime claimed and how your knowledge connects them.