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Contractor Subject to Criminal Prosecution for Set-Aside Violations

5/10/2012 | Construction Blog

A subsidiary of Skanska avoided criminal prosecution by agreeing to pay a $19.6 million settlement over allegations that Skanska improperly took advantage of government set-aside programs. In conjunction with that settlement, it entered into a non-prosecution agreement with the U.S. Attorney’s office in Manhattan. At the time of the settlement, Skanska was the low bidder on a large subway construction project and risked not having the contract awarded to it by the Metropolitan Transportation Authority.

Skanska was accused of using a front company, which it controlled, to meet government set-aside requirements for multiple projects. The front company had no employees and the work it was hired to perform was done by the general contractor or other companies. The owners of the front company are still facing mail and wire fraud charges.

Law enforcement officials are targeting companies that use sham corporations to meet set-aside requirements like Schiavone Construction Company. Schiavone admitted that over a ten year period, it used sham or front companies to perform over $600 million in public construction work.

The federal whistleblower statute has important implications here. If federal funds are used to finance any part of a public project, the federal whistleblower statute can be used by individuals to identify companies that violate the set-aside requirements; if actions against those companies result in financial recoveries through settlement or verdict, the financial rewards to a whistleblower can be substantial.

The case should serve as notice to minority, women, or disabled veteran owned businesses and the parties that hire them that their operations will be under increased scrutiny.