According to Webwire, on Monday July 31st the U.S. District Court for the District of Columbia ruled that bonding companies can be held liable for treble damages under the False Claims Act for issuing surety bonds to construction companies that falsely claim to be SDVOSB.”-- Washington, D.C. – WEBWIRE – Wednesday, August 2, 2017
What this ruling simply says is that the bonding company knew or should have known that the “SDVOSB” in this case was not performing the work and thus violating the terms of the contract. The bonding company should have known because they had access to invoicing showing that payment was made to non-SDVOSB firms at a level violating the terms of the contract (Limitations on Subcontracting Rules). By continuing to issue the performance and payment bonds in spite of their client violating the contract (under the Miller Act), they were furthering the fraud and thus are held liable.
After reviewing the details of this ruling I communicated with several high-ranking members of the surety industry and here are my conclusions:
So, what does this ruling mean for the SDVOSB construction community and federal certification program participants?
The surety industry has been stunned with this ruling and effectively are forced to participate in policing the legitimacy of the SDVOSB program participants they bond. They do not have the resources nor do they have the expertise to perform this policing function so…. The Surety industry must rely on legitimate certification programs to police the firms for them (SBA, VA CVE, etc.). If you are claiming any designation covered under federal guidelines (8(a), SDVOSB, SB, WOSB, HUBZone, etc.), without proof of certification (not self-certified) and being in good standing by the above-mentioned organizations, then you will be highly scrutinized from the surety industry… translation….bonding capacity programs may be lowered or dropped all together if you are self-certified only. Even if you are certified by those organizations, then you should expect to be asked to show you are in good standing and expect to be asked how you will comply with, for example,…Limitations on Subcontracting regulations on your projects.
We are all aware that the SDVOSB program and quite frankly all self-certification programs have been plagued by the temptation and execution of fraud. Until organizations such as the SBA require a formal certification process for all programs and are funded to handle the process, additional indirect policing efforts such as this ruling should be anticipated. It is crucial that your federal construction business anticipates this tightening of the surety industry and communicates your compliance effectively to your brokers. Being aware of and understanding case law changes as well as properly interpreting and implementing compliance measures requires investing in individuals or services known to give a solid understanding of federal compliance ….your bonding program will depend on it.
Kevin Wimsatt, Principal / Owner
Bold Concepts, Inc.
Bold Concepts’ Enhanced Bonding Program allows your business to maximize growth potential by lowering the barriers to substantial increase in your bonding program. Bold Concepts helps you navigate the key questions the bonding company needs to know about your company, thus ensuring that they feel confident in your business aptitude and financial astuteness. To learn more about Federal construction services at Bold Concepts, contact us today.