2 contractors settle SBA 8(a) fraud allegations for $3.6M
- The U.S. Department of Justice announced that two contractors have agreed to pay $3.6 million to settle allegations that they defrauded the Small Business Administration (SBA) 8(a) Business Development Program. The 8(a) program assists qualified disadvantaged and minority businesses through benefits like loan guarantees and contract set-asides.
- The U.S. Attorney’s Office for the District of Colorado said that Michael Vigil, a 91% owner of VMJ Construction LLC, of Colorado, qualified for and entered the 8(a) program in 2011 due to his Hispanic ethnicity. However, the District Attorney’s office said that Vigil misrepresented that he was the chief decision-maker and manager at VMJ. Specifically, VMJ relied almost exclusively on Vigil Contracting, of Maryland, to bid on and complete work awarded to VMJ under the 8(a) program. John Vigil is operations manager of Vigil Contracting and also a VMJ stakeholder, and does not qualify for the program. In addition, VMJ allegedly used Vigil Contracting’s bonding, office space, employees, contractors, software, computers and vehicles.
- The DOJ did not assign an amount to the contracts VMJ won under the guise of being a legitimate 8(a) contractor but said that the company had done work for the U.S. Army, U.S. Navy and the Department of Agriculture. “When companies lie about their eligibility to get these contracts,” wrote U.S. Attorney Jason Dunn, "they prevent other deserving small businesses from getting the assistance that Congress intended.”
The 8(a) application process is an extensive one with strict guidelines, particularly when it comes to who is actually making day-to-day decisions and controlling the qualified company. The SBA allows joint ventures and mentor relationships, but those arrangements must adhere to strict program requirements, all in an effort to make sure that the disadvantaged company is not used as a pawn and that program benefits remain exclusive to the businesses that need assistance.
Qualifying under the 8(a) program is not an absolute guarantee that contractors will win work, but it does give many a much better shot at scoring a lucrative federal contract. State and local authorities also sometimes use 8(a) certification as a basis for qualification for minority and disadvantaged business programs, so that’s even perhaps more of an incentive for some to flout the law.
Defrauding the 8(a) program can lead to severe penalties, like they were in the Vigil case. In July, the U.S. government moved to seize millions of dollars of property and cash from two Kansas contractors and others alleged to have been party to 8(a) fraud, according to documents filed in U.S. District Court for the Western District of Missouri.
The complaint is against Topeka, Kansas, contractors Matthew Torgeson and Matthew McPherson, along with several of their alleged associates. The government claims that Torgeson, McPherson, their businesses and others benefited from ill-gotten contracts after they set up at least three companies as disadvantaged enterprises. One Native American-owned company qualified for 8(a) status. The government maintains that the cash and property in question represent proceeds of the fraud and the case is still under investigation.
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