Federal contractor fraud is being alleged in a recent qui tam lawsuit, against a group of New York construction companies and their owners. To settle these allegations of federal contractor fraud, the construction companies and their owners have agreed to pay $3 million.

New York based contracting companies Zoladz Construction Company Inc., Arsenal Contracting LLC, and Alliance Contracting LLC, and owners John Zoladz and David Lyons have agreed to pay this amount to settle violated any alleged violations of the False Claims.

The companies are accused of falsely securing federal contracts that are designated for service-disabled veteran-owned small businesses, known as SDVO businesses.

Overview of Federal Contractor Fraud Allegations

The Justice Department alleged the companies unfairly obtained the contacts by using a disabled veteran to essentially serve as a figurehead for the company that was being built. In order to qualify for an SDVO small business, a service disabled veteran must own and control the company in question.

So Zoladz allegedly hired a service disabled veteran to pose as the owner and operator for Arsenal, which presented itself as an SDVO business. Then after receiving the SDVO contracts, Arsenal allegedly subcontracted almost all of the leg work to Zoladz and Lyons’ construction company Alliance.

Considering that neither Zoladz and Lyons are service disabled veterans, they allegedly perpetrated federal contractor fraud to secure the building contracts. The United States Justice Department alleged that Arsenal was a sham company that relied on Alliance and ZCCI employees to run it.

Zoladz and Lyons alleged committed various counts of federal contractor fraud, by making false statements to the United States Department of Veterans’ Affairs regarding whether or not Arsenal was eligible for the SDVO small business contracting program.

The construction owners also allegedly made false claims regarding SDVO small business eligibility requirements and whether their company met those requirements.

“Contracts are set aside for service-disabled veteran-owned small businesses so to afford veterans with service-connected disabilities the opportunity to participate in federal contracting and gain valuable experience to help them compete for future economic opportunities. Every time an ineligible contractor knowingly pursues and obtains such set-aside contracts, they are cheating American taxpayers at the expense of service-disabled veterans,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division.

The federal contractor fraud settlement came to $3 million after lawyers analyzed how many entities were involved in the alleged scam and the nature of the whistleblower allegations.

The federal contractor fraud settlement will resolve the alleged violations under certain provisions of the False Claims Act, which states that whistleblowers can file legal action on behalf of the federal government and can be eligble to receive up to 30% of any settlement amount.

In order to qualify as a whistleblower, the individual must be the primary source of the information and be the first to notify the government. Whistleblowers are considered powerful assets in preventing fraud against the government, and preventing good tax payers from getting ripped off.

In the case of this federal contractor fraud settlement, the whistleblower will received $450,000.

This Federal Contractor Fraud Lawsuit is United States ex rel. Western New York Foundation for Fair Contracting, Inc. v. Arsenal Contracting, LLC, et al., Case No. 11-CV-0821, in the U.S. District Court for the Western District of New York.