ADS Tactical: One Company’s Resources, Other Companies’ Names

In the ADS Tactical 2017 small business settlement, ADS Inc. agreed to pay $16 million to resolve allegations of concealed affiliations, false eligibility claims and bid rigging. The case reaches the work a proposal writer, accountant or contracting employee can see: who prepares the bid, whose systems support the business and who directs the operation behind the name on the award.

The Justice Department announced the Virginia Beach defense contractor’s settlement on August 10, 2017. It alleged that ADS controlled purported small businesses, concealed those relationships and helped them obtain contracts reserved for eligible firms. This form of small-business contracting fraud takes opportunities intended for eligible small businesses and redirects them to the operation behind the front.

Hidden Affiliations and Small-Business Eligibility

The government alleged that ADS and the purported small businesses misrepresented their eligibility to win set-aside contracts. Eligibility depended on the businesses’ size, ownership and who actually ran them.

The settlement announcement named the businesses and assigned different eligibility allegations to them:

• Mythics Inc. and London Bridge Trading Co. Ltd. appeared among the purported small businesses the government described as affiliated with ADS.
• MJL Enterprises LLC allegedly claimed eligibility as a service-disabled veteran-owned small business when it did not qualify.
• SEK Solutions LLC and Karda Systems LLC allegedly claimed eligibility under the Small Business Administration’s 8(a) Business Development Program for socially or economically disadvantaged businesses when they did not qualify.

The allegation was that the businesses concealed their affiliations with ADS while making false statements about size and program eligibility. That puts hidden control across businesses at the center of the story. We see the unfairness in plain terms: the staff and resources of one operation allegedly competed under several supposedly independent names.

The whistleblower’s amended complaint alleged that the ADS businesses improperly obtained approximately $2.8 billion in small-business set-aside contracts during 2007 to 2013. We see a vast amount of work intended for small businesses behind that much smaller settlement.

ADS Resources Behind MJL and SEK Proposals

The whistleblower’s amended complaint alleged that ADS ran essentially all of MJL’s daily business operations. Its account of the proposals made the control allegation concrete:

The complaint also alleged that ADS staff supplied essentially all of MJL’s accounting and bookkeeping, computer services through common network servers, and the logistics needed to perform the contracts. The proposal carried MJL’s name while ADS allegedly supplied the experience and operating support behind it. In the TriMark case, the whistleblower’s complaint similarly alleged that a small business repackaged TriMark’s quote under its own name.

The ADS complaint alleged that an ADS employee had been directed to work with MJL and SEK executives and program managers on government proposals using ADS resources. That is the sort of connection someone doing the work can recognize: the employer providing the staff and tools differs from the business presented on the bid.

The complaint separately alleged that ADS used SEK as a pass-through for small-business and women-owned-business set-asides. The insider’s account reaches the proposal work beneath those program labels.

The Bid-Rigging Allegations Reached Prices Too

The ADS bid-rigging allegations concerned prices as well as access to reserved contracts. The Justice Department said the settlement resolved allegations that ADS inflated or distorted the prices charged to the government under certain contracts.

The whistleblower’s amended complaint alleged that ADS and Mar-Vel International Inc., competing bidders under a Prime Vendor contract, coordinated their bids for individual orders. According to the complaint, information from ADS’s director of community relations described an agreement to bid high, bid low or withhold bids on those orders. The alleged purpose was to arrange for one of the businesses to win.

This is where bid coordination between supposed competitors changes what the buyer sees. Under the complaint’s account, a higher bid or a decision not to bid could serve an agreement made before the government chose a winner. For someone involved in pricing, the communications behind those decisions can explain what the final bid sheets conceal.

The Business Behind the Award

The federal definition of a subcontractor includes distributors and vendors as well as manufacturers. For these eligibility allegations, we follow those commercial relationships back to ownership and control. The complaint’s account of MJL connects the award recipient to the staff preparing its bids and the systems supporting its work.

Transparency International Defence and Security’s 2022 report Hidden Costs: US Private Military and Security Companies and the Risks of Corruption and Conflict makes a useful recommendation for that wider industry. It calls for subcontractor names, business registrations, beneficial ownership information and itemized subcontract values to follow the chain beyond its first tiers. Its reason is blunt:

Applied to an eligibility inquiry, that recommendation gives us a practical question: who ultimately owns the businesses appearing along the contract chain? The ADS complaint adds the operational question of whose employees and resources make those businesses function. Together, those questions connect the government’s award to the organization an insider actually knows.

The Owner’s Separate Settlement

ADS’s majority owner and former chief executive agreed to pay $20 million in a separate settlement announced on August 20, 2019. The government alleged that he caused ADS to represent falsely that it qualified as a small business despite alleged affiliations that made it ineligible. It alleged that his representations resulted in numerous reserved contracts going to ADS.

The same announcement identified a separate $225,000 agreement with ADS’s former general counsel over his role in the alleged scheme. The Justice Department put the combined settlements at more than $36 million, including resolutions with other businesses involved in the alleged scheme.

For an insider, the owner’s settlement brings the decision behind the eligibility statement into focus. The government pursued both the business that obtained the contracts and the person it alleged caused the false representations. Who directed the statement matters alongside whose company name appears on it.

What Evidence Is Needed to Prove Fraud?

The evidence that matters connects the eligibility statement to actual control and the contracts obtained, and sorting that out is what we do with you. In the ADS complaint, that connection included proposal preparation, past performance presented to the government, accounting work, shared computer services and logistical support. Each describes work an employee could see in the ordinary course of the business.

We develop that account with the person who knows it. A proposal writer may understand why another firm’s name appeared on work prepared inside ADS, while an accounting employee may understand which business actually provided the back office. Connecting those responsibilities to the particular representation and award is how we move from a suspicion about the relationship to a case about government money.

The Whistleblower Case and Rewards

A whistleblower brought the False Claims Act case in federal district court in the District of Columbia. The Justice Department announced approximately $2.9 million for the whistleblower from the ADS company settlement and $3.6 million from the later owner settlement. The Small Business Administration and General Services Administration inspectors general assisted with the case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Whose Work Went Into the Bid

If you prepared the proposal, supported the nominal contractor or saw another business directing its decisions, speak to one of our Whistleblower Experts about how the arrangement worked. We work with you to build your strongest small-business fraud whistleblower case and bring in small-business contracting fraud whistleblower lawyers who understand affiliation and reserved contracts. We stay involved through the case, with your knowledge of the business at its center.