VMJ Construction / Vigil Contracting: The 8(a) Successor and Its Shared Operations

VMJ Construction and Vigil Contracting, together with VMJ’s owner and Vigil Contracting’s operations manager, agreed to pay $3.6 million to resolve allegations of 8(a) contract fraud involving a successor and its shared operations. The government alleged that VMJ obtained reserved contracts while relying almost entirely on Vigil Contracting to bid, complete the work and run the business after Vigil Contracting graduated from the program. For an insider, the telling comparison is between the owner presented to the government and the people whose decisions everyone followed.

What Is an 8(a) Set-Aside?

An 8(a) set-aside reserves a federal contracting opportunity for eligible socially and economically disadvantaged small businesses. The Small Business Administration’s program is intended to help those businesses develop through access to government work and to encourage competition.

In its account of the VMJ settlement, the Justice Department explained the rule at the center of this case: the qualifying owner must manage daily operations and take responsibility for long-term decisions. Applicants must also truthfully disclose their affiliations with other businesses. Those disclosures let the Small Business Administration assess the applicant’s size, potential for success and ability to perform the required share of its contracts.

The program has an endpoint. After nine years, a participant graduates and loses eligibility to bid on the reserved contracts. Vigil Contracting graduated in 2011. VMJ entered the program that same year.

That transition is the hinge of the case. One business had reached the end of its access to reserved awards. The other had just gained access. The government’s allegations concerned how much of the graduate’s operation sat behind the new participant.

The Majority Owner and the People in Charge

VMJ’s qualifying owner held 91% of the company. The other 9% belonged to Vigil Contracting’s operations manager. The government alleged that the operations manager was among the people actually running VMJ.

According to the Justice Department, VMJ’s majority owner did not control the company, set its long-term policy or manage its daily business. Vigil Contracting employees and contractors allegedly made the high-level decisions and managed the daily operation instead. The person whose eligibility supported the application was supposed to be running the business. The government said other people were doing that job.

This is why business affiliations and shared management matter in small-business contracting. The industry’s eligibility rules examine control, management ties and economic dependence as well as ownership. The decisions made inside the business show who exercises authority.

Bonding, Staff and the Business Behind the Bid

The government alleged that VMJ relied almost exclusively on Vigil Contracting both to bid for the contracts and to complete them. Its account identifies the practical resources behind that dependence: bonding, office space, employees, contractors, software, computers and vehicles.

That reaches from the bid desk to the job site. The government’s allegation connected those resources to the same outside personnel who allegedly directed VMJ’s business.

For the person preparing a bid, the connection is practical: whose resources make the proposed job possible? On the job site, it is whose personnel assign the work and make the decisions. That knowledge gives substance to an ownership statement that otherwise sits on a form.

We see a business-development program allegedly supporting the graduate’s operation instead of the new owner’s. New access. The graduate’s people in charge.

The Same Control Story in the Annual Update

The government alleged that VMJ knowingly misrepresented who controlled the business in both its initial application and an annual update to the Small Business Administration. The alleged discrepancy therefore reached beyond the application that first secured admission.

The annual update gives an insider another point of comparison: what the company told the Small Business Administration about its operation while those management and resource relationships continued.

Agriculture Awards Depended on the Claimed Eligibility

The Department of Agriculture awarded VMJ contracts reserved for program participants, according to the government’s announcement. The government alleged that VMJ secured those awards through false eligibility representations. Agriculture was the civilian buyer in an account that also identified Army and Navy contracts. Those opportunities were reserved for businesses meeting the program’s requirements.

What the VMJ Construction Settlement Resolved

The U.S. Attorney’s Office for the District of Colorado announced the settlement on February 6, 2019. The agreement to pay covered VMJ Construction, its Colorado-resident owner, Maryland-based Vigil Contracting and Vigil Contracting’s operations manager. It resolved the government’s allegations that they defrauded the Small Business Administration program through the operating arrangement and false representations described above.

The office credited the Small Business Administration Office of Inspector General, U.S. Army Criminal Investigation Command and Department of Defense Office of Inspector General with work on the investigation.

The Eligible Businesses Lose the Opportunity

False eligibility claims take reserved opportunities away from the businesses the program exists to develop. The Justice Department made that competitive harm explicit in the VMJ announcement. The ownership and control requirements determine whose business the government is helping to build.

The 2005 Contract Management article Small Business Act Certification Fraud: Raising the Stakes described the same injury across small-business contracting:

The article examined how false claims to eligibility divert reserved awards. Its point bears directly on the alleged VMJ arrangement: the government was purchasing an opportunity for a qualifying business to develop along with the contracted work. Hidden outside control defeats that purpose.

A similar transition appeared in the government’s case involving G.A. Blanco & Sons and Essential Business Products. After graduating from a disadvantaged-business program, Blanco allegedly helped an employee create Essential, falsely represented that the employee had resigned, and retained control over pricing, bidding and bank accounts while sharing offices. Both cases turn on the gap between the claimed separation and who allegedly kept running the business.

What an Insider Can See Behind Shared Operations

An insider’s knowledge can connect the eligibility story to the people who bid, direct and perform the work. In a successor arrangement like the one alleged here, we examine that connection across the participating business and the graduate supplying its resources.

Bid-preparation records, bonding records, staffing assignments and management communications can help explain the relationship. We work through those connections with the person who knows the business and the particular reserved awards.

Subcontractors and competitors may recognize parts of that arrangement from a different vantage point. A subcontractor may know whose personnel directed the job. A competing business may recognize the graduate’s resources behind the new bidder. The employee who saw the application or annual update may hold the other half of the comparison.

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

You Know Whose Decisions Carried the Job

If you saw a graduated contractor running the bids or work behind another company’s eligibility claim, speak to one of our Whistleblower Experts about who ran the bids and the work. We build your strongest government procurement whistleblower case around that relationship and bring in government procurement whistleblower lawyers who understand SBA ownership and control disputes. You have a partner from the first conversation through the pursuit of a recovery.