Northland Associates: Shared Operations Behind Diverse Construction’s Set-Asides

Northland Associates agreed to pay $2,125,000 over allegations of hidden affiliation and shared operations behind Diverse Construction’s set-asides. The government said Northland helped run the business winning the reserved contracts and received its construction subcontracts. For someone who knew the bid calendar, the estimating work or the office files, the relationship was visible in the daily work of the companies.

The Justice Department’s May 4, 2020 announcement described an arrangement reaching from ownership and staffing to accounting, bonding and payments. Northland, The Diverse Construction Group and Northland’s president admitted that their conduct violated federal regulations intended to encourage awards to service-disabled veteran-owned small businesses and small businesses operating in HUBZones.

How Northland and Diverse Shared Operations

Northland maintained both companies’ bidding calendar, supplied former employees and handled the back office for Diverse, according to the government’s account. Diverse was 51% owned by a service-disabled veteran and 49% owned by senior Northland officials. That ownership split sat alongside an operating relationship that reached into much of Diverse’s business.

The government said Northland handled Diverse’s accounting, expediting, estimating, purchasing, contracting and clerical work. Diverse then sent construction subcontracts to Northland for fulfillment.

Those details explain the alleged hidden affiliation. The relationship reached the schedule for pursuing work, the people supporting the bids, the administration of the business and the company receiving work afterward. An estimator or accountant familiar with those arrangements would recognize a much closer connection than separate company names suggest.

The Justice Department explained why that connection mattered to eligibility. A business seeking these set-asides had to report its income and employees along with those of its affiliates. If the combined figures exceeded the applicable limits, neither company qualified for small-business set-aside contracts. The power to control another company, or common control over both, was central to the affiliation question.

Why the HUBZone Office Mattered

The government alleged that files moved from Northland’s office to Diverse’s office to make Diverse appear operational in a HUBZone during government inspections. Northland’s office was in Liverpool, New York, outside a HUBZone. Diverse’s office was in Plessis, New York, inside one.

The program’s purpose makes that alleged staging especially pointed. The Congressional Research Service’s 2015 report, Small Business Administration HUBZone Program, describes a program intended to create jobs and increase investment in economically distressed communities.

A qualifying location therefore represented access to work reserved for businesses serving that purpose. According to the Justice Department, witnesses recounted moving boxes of files between the offices so the Plessis location would look operational when the government inspected it.

We see the absurdity in that swap: a program meant to bring jobs and investment into a community was allegedly met with a delivery of office files. An office for the inspection. The opportunities at stake belonged to eligible small businesses and the distressed communities the program was meant to serve.

The Congressional Research Service report also describes a 2008 Government Accountability Office test of the certification process:

One application used a coffee store’s address. That earlier test illustrated the distance between an address on an application and a business actually operating there. The Northland allegations brought that distinction inside the office itself, with files moved to shape what inspectors would see.

The HUBZone office allegation gave people who knew where the files normally lived a direct view of the discrepancy.

What Happened After the SBA Questioned the Relationship

The government alleged that the response to scrutiny included misleading declarations and a concealed payment route. In 2009, after the Small Business Administration questioned the affiliation, Northland’s president and Diverse’s majority owner submitted sworn declarations misrepresenting the relationship between the companies.

Shortly afterward, according to the Justice Department, Diverse routed more than $1 million to Northland through a Northland subsidiary in an effort to hide the affiliation. The alleged concealment reached both what the companies told the agency and how money reached Northland.

Northland’s Construction Subcontracts and the Bonding Broker

The government’s account also identified a business outside the construction companies that helped Diverse obtain the bonds needed to pursue federal work.

Contractors bidding for federal construction contracts generally must post performance and payment bonds. The Justice Department explained that the bonding company must ensure that the contractor will perform the work.

Rose & Kiernan, an insurance and surety brokerage, acted as bond broker for both Northland and Diverse. Its settlement, which also covered a senior vice president, resolved allegations that they knew or should have known about the companies’ affiliation and the steps taken to conceal it. The government alleged that helping Diverse obtain bonding substantially contributed to its submission of false payment claims.

A similar issue appeared in the North American Specialty Insurance settlement, announced in September 2019. The government alleged that the surety continued bonding Claro Company despite knowing or having reason to know of hidden control, affiliation and financial representations undermining the contractor’s eligibility for the Small Business Administration’s disadvantaged-business program.

The parallel concerns the business arranging or providing bonding: its knowledge of the contractor’s actual relationships can become part of a false-claims case. In Northland’s case, the government specifically alleged that the broker served both construction companies while helping Diverse obtain the required bonds.

What Northland Agreed to Pay

Northland and its president each agreed to pay $2,125,000 as part of the $4,470,000 resolution. Diverse agreed to pay $100,000, and the Justice Department reported that Rose & Kiernan had paid $120,000 when it announced the settlements.

The announcement covered a joint civilian and military investigation, including the Department of Veterans Affairs’ inspector general, whose account specifically described VA set-aside contracts.

Whistleblower lawsuits under the False Claims Act triggered the investigation.

How Much Money Can a Whistleblower Get From a Qui Tam Lawsuit?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In this matter, the Justice Department announced a $1 million whistleblower reward to come from settlement proceeds received by the government from Northland, Diverse and Northland’s president.

You Know Who Ran the Work

If you know who prepared the bids, handled the accounts or moved the files before an inspection, talk with our whistleblower experts about the operating relationship you saw. We work beside you to build your strongest government procurement fraud whistleblower case around that knowledge and bring in government procurement fraud whistleblower lawyers who understand affiliation, set-aside eligibility and construction bonding. You have a partner from the first conversation through the pursuit of a recovery.