A week ago, I attended a seminar at Kegler Brown put on by construction attorneys Don Gregory and Mike Madigan for our friends and clients in the construction industry. They talked about very interesting and important topics, such as joint venturing, the pressures that the economy is putting on the construction industry (especially in central Ohio), and relevant issues surrounding the interests of private industry to reach small and minority business goals on their projects- goals that were traditionally the focus of the local, state, and the federal government.

After their presentations, I approached Don and let him know that one of the examples he used happened to be a case that I prosecuted while at the Ohio Department of Transportation. That case involved debarring a disadvantaged business enterprise (“DBE”) and a majority-owned company.

During his seminar presentation, Don discussed the classic issues that arise in these debarment proceedings, including how a minority-owned company acts as a front to one that is majority owned. That is because once they are certified, these companies can seek sheltered government contracts, which can often be quite lucrative.

For the case I prosecuted, the two companies, one majority-owned and one minority-owned, shared the same building, staff, vehicles, and accounting system, and there was even a familial relationship between the majority-owned business and the minority-owned business.

These were both successful companies at the time, until an anonymous whistleblower filed a complaint with the federal government. That person initiated what is referred to as a “qui tam” action, in which the whistleblower brought an action against the company on the federal government’s behalf for violating the federal DBE laws. Once filed, the government stepped in and became the plaintiff, and the whistleblower was able to receive some of the settlement dollars. ODOT also benefited from the federal government lawsuit by being able to use its discovered information in the debarment proceedings.

This case was a real-world example showing that these situations do happen, often in our own backyards. Then, very intelligent, very sophisticated, and very successful people made poor decisions, and whether they were intentional or not, they were non‑compliant with the federal code and they suffered the consequences.

As you look at your requirements to hire certified/disadvantaged companies, make sure that those companies meet the state and federal requirements for their certifications. They must be separate from a majority-owned company, have their own equipment, hire their own people, be truly ready, willing, and able to do the work, and provide a commercially useful function in doing the work. These should be table stakes for any engagement, but it is easy to see the bright lights and big dollars of these private and public contracts and let due diligence slide. This can happen especially if you are under pressure to meet a goal in this tight market.

There are many opportunities for success in the central Ohio construction industry, and partnering with small and minority-owned businesses is an excellent way to grow that sector of the economy that will ultimately benefit everyone. But there are rules that must be followed and certain people who are watching for mistakes.