Policy

A Small Business Whistle-Blower Gets a Fraud Settlement


Contracting for the federal government is a specialized but lucrative field. Small businesses that managed to navigate the arcane rules for bidding for government jobs landed more than $83 billion in federal contracts last year, aided by policies that encourage agencies to award a fixed percentage of work to small companies. The process is complex and often contentious: It’s not uncommon for losing bidders to file protests, arguing, among other things, that the winner shouldn’t have qualified for set-asides.

Saiz Construction, a Salt Lake City-based company that qualifies for federal jobs reserved for small businesses owned by members of disadvantaged groups, just won another kind of legal battle. Back in 2011, the Native American-owned company filed a whistle-blower complaint alleging that a larger company had used its relationship with Saiz to win contracts set aside for small businesses. On March 21, the Department of Justice announced that the larger company, Salt Lake City-based Okland Construction, had agreed to a $928,000 settlement—and that Saiz Construction and its owner, Abel Saiz, were entitled to $148,480 plus $86,000 in legal fees.

“Large businesses must not be allowed to fraudulently obtain access to contracts set aside for small businesses,” Small Business Administration Inspector General Peggy E. Gustafson said in a press release.

Okland says it did no wrong, and that the company settled to avoid a costly legal battle. “We dispute all of the allegations completely,” says John McEntire, chief financial officer of Okland, which has 600 employees. “[Saiz] made a lot of money with us, and we’re disappointed in him and in the federal government.”

The Saiz case evolved from a mentor-protégé program that the SBA created in the 1990s. The idea was to encourage large companies to share expertise with small businesses vying for contracts, giving large companies incentive by letting them share the work—and profit—on jobs set aside for small business.

Saiz and Okland entered into such a relationship in 2002, according to the complaint, which was filed in U.S. District Court in Utah and unsealed last week. That helped Saiz win federal contracts—mostly building jobs on Air Force bases—worth more than $18 million, based on data from Bloomberg Government.

Those jobs should have been performed by a joint venture formed by Saiz and Okland; instead, the complaint says that Okland hijacked the partnership, using the smaller company “as a pass-through or front” to obtain government contracts. When Saiz protested, Okland threatened to “bury [him] in court,” the complaint says. McEntire declined to discuss specific allegations.

The complex process of steering contracts to small and disadvantaged businesses has a long history of problems—mainly that some of the awards allocated for small companies always seem to go to larger ones. Whistle-blower suits that call out fraud give small businesses some leverage.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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