Lamson, Dugan and Murray, LLP, Attorneys at Law

Biggest DBE Fraud Ever or Best Proof of Major Flaw in the DBE Program

Posted in Disadvantaged Business Enterprises, Penalty, Public Contracts

Last month a business owner was convicted in what is being heralded as the largest Disadvantaged Business Enterprise (DBE) fraud case in history. The scheme lasted over 15 years and involved over $136 million in government contracts. But, is this simply a story of fraud or does it expose a much larger issue — a major flaw in the DBE program?

The case was filed against Joseph Nagle, the president, CEO and part-owner of Schuylkill Products, Inc., alleging that his company defrauded the DBE program by using a small Connecticut highway construction firm as a front to obtain government contracts. To carry out the scheme, Schuylkill’s personnel pretended to be employees of the Connecticut company, using phony business cards, e-mail addresses, and stationery, as well as using magnetic placards and decals bearing the Connecticut company’s logo to cover up Schuylkill’s logos on its vehicles. The FBI’s press release on the case can be found here.

Or, does this case illustrate a larger problem with the DBE program? Prime contractors have long complained that there are very few, if any, qualified DBE contractors capable of performing the work necessary on the job. And, when they ask for assistance from the state agency to discuss who is capable, they are told that the state only certifies DBE status, not whether the DBE is capable of performing the work.

One such contractor wrote a letter to the editor of Pottsville Republican Herald expressing this very concern. You can see his Letter to the Editor here. This prime contractor explained that Schuylkill’s “fraud” was well known in the construction community and by state inspectors. And, while Schuylkill should not have falsified documents, there were simply no DBE in Pennsylvania that could have performed this work. According to this prime contractor, the DBE program forces prime contractors to hire and accept responsibility for less than qualified subcontractors’ performance, costing companies hundreds of thousands of dollars to correct mistakes.

While the purpose behind the DBE program is laudable, it places prime contractors in the difficult situation of having to use subcontractors that may not be qualified for the job. Is the Schuylkill’s case the largest case of DBE fraud or does it highlight problems with the DBE program that should be addressed?

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