Federal Engineers and Constructors: Work Behind the Hanford Small-Business Subcontracts

Federal Engineers and Constructors paid $2 million in September 2017 to settle small-business subcontract fraud allegations that it performed the work behind Hanford subcontracts awarded to Sage Tec. The government alleged that Sage Tec supplied the qualifying name while Federal Engineers supplied substantially all the work. For someone who knew the crews, the payroll or the subcontract paperwork, the gap between those accounts was something they could see in their working day.

In announcing Federal Engineers’ settlement, the Justice Department centered its account on two subcontracts reserved for small disadvantaged businesses. It alleged that FE&C was the operating business behind the fronts. Washington Closure Hanford was the prime contractor reporting small-business participation to the Department of Energy.

Why the Hanford Subcontracts Were Reserved

Washington Closure Hanford’s River Corridor Closure Contract combined environmental cleanup with a requirement to direct subcontracting opportunities to qualifying small businesses. From 2005 through 2016, the prime handled environmental remediation along Hanford’s Columbia River Corridor. Its workers cleaned waste sites, decontaminated and decommissioned former plutonium production reactors and surplus facilities, and disposed of contaminated waste.

The federal payment arrangement made subcontracting central to that job. The Department of Energy fully reimbursed Washington Closure Hanford for hundreds of millions of dollars in subcontracts. The contract required small and disadvantaged business participation, including woman-owned small businesses. The government was paying for the cleanup while also requiring the prime to bring those businesses into the work.

The government’s complaint announcement also described the financial pressure behind those reports. It alleged that failure to meet the participation requirements or provide small-business subcontracts in good faith could cause the Department of Energy to withhold millions of dollars from Washington Closure Hanford. The prime therefore had money at stake in the reported participation. The allegedly false credit mattered to its own contract with the government as well as to the businesses seeking the work.

We see the competitive injury in the alleged arrangement: the small business ready to do the job loses the opportunity, and the prime still claims credit for helping small businesses.

What Is Small Business Fraud?

In this Hanford case, the alleged small-business set-aside fraud was a mismatch between the business presented as qualified to perform and the business actually supplying the workforce. The government alleged that Washington Closure Hanford, FE&C, Sage Tec and Sage Tec’s owner knowingly misrepresented Sage Tec’s eligibility to obtain the reserved subcontracts.

The Justice Department’s account of its complaint makes the alleged arrangement unusually concrete. It identifies the subcontracts, the staffing and the employer that kept the workers on its payroll.

The 100 Area Subcontract and FE&C’s Payroll

In November 2010, Washington Closure Hanford awarded the 100 Area Subcontract on the representation that Sage Tec would perform as a woman-owned small business with FE&C as its teaming partner, according to the government’s complaint announcement. The complaint alleged that Sage Tec had only one employee, its owner, and that both Washington Closure Hanford and FE&C knew it would act as a pass-through.

The workers allegedly remained on FE&C’s payroll while Sage Tec used them to perform the subcontract. The government described Sage Tec’s contribution as its woman-owned small-business name.

The payroll detail matters because it connects the claimed participant to the people actually doing the job. An employee administering payroll or supervising those workers could recognize the difference between the arrangement on the subcontract and the workforce it used.

The 300 Area Subcontract Repeated the Arrangement

In October 2012, the complaint alleged, Washington Closure Hanford awarded Sage Tec the 300 Area Subcontract, worth over $15 million, again presenting FE&C as its teaming partner. The complaint alleged that Sage Tec still had only its owner as an employee while FE&C again performed the work behind its name.

That repetition is the point. The government alleged that the same small-business identity opened another reserved opportunity while the same operating company did the work. The contract value gives the arrangement its scale: a subcontract worth millions resting on a supposedly performing business with a single employee.

The Earlier Truck & Pup Subcontract

The government’s complaint announcement also described an earlier FE&C arrangement involving Phoenix Enterprises Northwest. In May 2009, Washington Closure Hanford awarded Phoenix the Truck & Pup subcontract as a small business. According to the complaint announcement, the Small Business Administration determined about a month later that Phoenix was a pass-through for FE&C, which did the work and did not qualify as a small business.

The complaint alleged that Washington Closure Hanford agreed to stop claiming small-business credit while allowing Phoenix and FE&C to keep the subcontract. Beginning in 2010, however, the prime allegedly claimed over $2.7 million in small-business credit for modifications despite knowing of the determination and its agreement.

We see the absurdity: the government said the arrangement did not qualify, and the prime allegedly kept counting it anyway. Someone handling the modifications or participation reports could recognize that contradiction.

The Separate Settlements

FE&C’s payment settled its part of the government’s allegations over the Sage Tec subcontracts. The company, the named subcontractor and the prime reached separate settlements within the same case.

Sage Tec and its owner settled the allegations against them, paying $235,000 in September 2017. In June 2018, the Department announced that Washington Closure Hanford had agreed to pay $3.2 million to resolve the allegations against the prime.

That final announcement described total government recoveries from all defendants in the case as more than $5.5 million. FE&C’s payment was one component of that case-wide recovery. The separate resolutions followed the participants’ different roles in the alleged arrangement: the business doing the work, the business supplying the qualifying name, and the prime claiming the credit.

Completed Work and Small-Business Participation

A contractor can complete the physical job while the promised small-business participation remains a different question. The 2005 Contract Management article Small Business Act Certification Fraud: Raising the Stakes examines that distinction through a dispute involving completed construction and concealed affiliation. Its criticism goes to who receives the opportunity reserved for small firms:

That is the useful lens for the Hanford allegations. The government described FE&C as performing substantially all the work. Its allegation concerned the small disadvantaged business through which that work had been obtained and credited. Getting the job done leaves the question of who got the job very much alive.

Ownership, management ties, control and who performs the primary work help show whether the named contractor operates independently. At Hanford, the government’s payroll allegation put that relationship in terms a person on the project could recognize.

What Proof Do You Need as a Whistleblower?

That depends on how your knowledge connects to the subcontract. We work through the evidence behind the promised small-business participation with you. In this case, the government’s account identifies the reserved subcontracts, Sage Tec’s staffing, FE&C’s payroll and the prime’s representations to the Department of Energy.

We examine those connections with the person who knows how the job ran. A subcontract administrator may understand what was promised. A payroll employee may know whose workers performed. A project manager may know who directed them.

The Hanford case began with a complaint from a local small business and its owner. The United States joined the case. The Department of Energy Office of Inspector General and the Small Business Administration Office of Inspector General conducted the investigation, and the U.S. Attorney’s Office for the Eastern District of Washington prosecuted the civil case.

The Justice Department also announced a whistleblower share from the prime contractor’s settlement. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Who Did the Work

If the small business named on a Hanford subcontract and the business running the job tell different stories, talk with our whistleblower experts about what you saw in the staffing, payroll or participation reports. We build the case with you and bring in federal procurement whistleblower lawyers who understand subcontracting and small-business eligibility. We stay beside you as your knowledge of the work becomes a case for recovering public money.