Hensel Phelps Construction Co. agreed to pay $2.8 million to resolve allegations that it participated in subcontracting fraud, but laid the blame for the scheme on a kitchen equipment subcontractor that settled its own case earlier this year. 

The allegations were related to Hensel Phelps’ 2011 contract with the U.S. General Services Administration to build a commons and health-care building for the Armed Forces Retirement Home in Washington, D.C. The project was completed in 2013.

As part of the contract, Hensel Phelps provided opportunities for service-disabled, veteran-owned small businesses (SDVOSB) to work on the project. It ostensibly found such a subcontractor to provide kitchen equipment for the project, but a False Claims Act lawsuit filed by Fox Enterprises Unlimited LLP alleged that TriMark USA LLC, a large subcontractor ineligible for SDVOSB status, actually provided the services.

The companies then used an actual SDVOSB as a passthrough in exchange for a 1.5% fee, allowing Hensel Phelps to claim financial credit from the government for working with an eligible small business, say Carla Freedman, U.S. attorney for northern New York, and Vanessa Waldref, U.S. attorney for eastern Washington.

Hensel Phelps and TriMark had negotiated the subcontract before the SDVOSB entered the deal, the settlement states. 

“Taking advantage of contracts intended for companies owned and operated by service-disabled veterans demonstrates a shocking disregard for fair competition and integrity in government contracting,” Waldref said in a statement.

Hensel Phelps ranks No. 12 on ENR’s 2021 Top 400 Contractors list with more than $5.8 billion in revenue the year prior. A spokesperson for the Greeley, Colo.-based construction firm says the company is dedicated to supporting small, disadvantaged and veteran-owned businesses, and to achieving diverse business participation on each project it undertakes. 

“With this settlement, Hensel Phelps admits that a single veteran-owned subcontractor did not perform sufficient work to count the full value of its subcontract for small business credit,” the company said in a statement. “Hensel Phelps acknowledges this oversight, but in no way participated in the manipulation perpetrated by TriMark USA LLC. Without admitting any liability, Hensel Phelps denies any intentional wrongdoing, and settled this civil action in order to avoid the cost of protracted litigation.”

Earlier this year, TriMark agreed to pay $48.5 million to settle its own case in what the U.S. attorneys said was the largest-ever False Claims Act recovery related to allegations of small business contracting fraud. A former TriMark executive, Kimberley Rimsza, also agreed to pay $100,000 as a civil penalty. As part of the settlement, TriMark admitted to improperly awarding government set-aside contracts to three small businesses between 2011 and 2021. It was actually a TriMark subsidiary that typically performed most of the work, the U.S. attorneys say. 

In a statement, TriMark said its subsidiary involved in the past business practices related to the settlement has implemented enhanced control procedures.

The False Claims Act allows anyone aware of alleged fraud against the government to file a civil case under seal on behalf of the government. If the case meets certain requirements and officials agree the accusations are legitimate, they can intervene in the case. Under the law, the whistleblower is entitled to a portion of the money recovered by the government. 

Fox Enterprises Unlimited, the whistleblower in these cases, will receive $630,925 from the Hensel Phelps settlement and $10.9 million from the TriMark settlement, officials say.

Court documents don’t specify how the company became aware of the alleged false claims and attorneys for Fox Enterprises didn’t respond to calls or emails, but the complaints state that it had “direct knowledge of the conduct” it alleged in the lawsuits.