The Sherwin-Williams Company has agreed to pay $1 million to resolve False Claims Act allegations that it participated in a scheme to defraud the federal Disadvantaged Business Enterprise (DBE) program in connection with a contract to paint the George C. Platt Memorial Bridge in Philadelphia.
Governed by statutes and regulations, the DBE program provides opportunities for small businesses owned by socially and economically disadvantaged individuals to work on federally funded projects by requiring that government contracts set goals for DBE participation. A government contractor may claim credit toward a DBE goal only if a DBE serves a “commercially useful function” on the project. A DBE does not serve a commercially useful function, however, if it acts as a mere pass-through, or extra participant, through which funds are passed to create the appearance that historically disadvantaged businesses did the work.
According to the government’s investigation, in 2011, Hercules-Vimas Joint Venture, LLC was awarded a $42.7 million contract by the Pennsylvania Department of Transportation to paint the bridge. The contract, primarily funded by the federal government, required that a DBE perform a percentage of work. Hercules-Vimas subcontracted with Vertech International, Inc., a DBE certified in Pennsylvania, to supply materials to meet this requirement.
The government says that while Hercules-Vimas represented to PENNDOT that Vertech was the paint supplier, it worked directly with Sherwin-Williams, a non-disadvantaged business, to deliver paint and materials to the project site. Vertech merely created invoices designed to conceal the fraud in exchange for a nominal fee.
In 2016, the owner of Vertech pleaded guilty to criminal charges associated with his role in the fraudulent scheme, as did a Hercules-Vimas principal in 2017. In addition, the government reached a $310,000 civil settlement of False Claims Act allegations against Hercules-Vimas in 2020.
According to the government, Sherwin-Williams’ liability as a third-party supplier arises from its knowing complicity with the fraudulent scheme. The government contends that Sherwin-Williams maintained the ordered supplies in storage and delivered them directly to Hercules-Vimas’s job site, then submitted invoices for payment of paint and supplies to Vertech, with knowledge and intent that Vertech would, in turn, create invoices on Vertech’s letterhead, adding a 1.75% mark-up (representing Vertech’s profit) and submit those invoices to Hercules-Vimas for payment. This scheme, the government believes, enabled Hercules-Vimas to submit a substantially lower bid than competing bidders on the Platt Bridge Project because, unlike Hercules-Vimas’s bid, competing bids included the reasonable market value for commercially useful functions performed by Disadvantaged Business Enterprises.
Jeffrey Newman is a whistleblower lawyer who can be reached at Jeff@Jeffnewmanlaw.com or at 617-823-3217.