Hensel Phelps to Pay $2.8M After Allegations of Subcontracting Fraud

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A Colorado-based general contractor has reached a $2.8 million settlement after being accused of using a pass-through scheme to falsely gain monetary bonuses from the government, according to the U.S. Attorney’s Office for the Eastern District of Washington.

The attorney’s office alleges that Hensel Phelps, a general contractor and construction company that performs large-scale private construction and public works projects nationwide, knew its subcontracts were performed by large businesses when the work was designated for businesses owned and operated by a service-disabled veteran.

In April 2022, a whistleblower filed a qui tam complaint against a 2011 contract awarded to Hensel Phelps to oversee the construction of the Armed Forces Retirement Home, a retirement community for veterans and active-duty members of the Armed Forces located in Washington, D.C.

“Our whistleblower client came forward with critical, inside information revealing that Hensel Phelps attempted to deceive the government into believing that a service-disabled veteran-owned small business was performing valuable work as a government subcontractor. We are encouraged that the Department of Justice and contracting agencies are closely scrutinizing large businesses’ subcontracting plans to ensure that legitimate small businesses have the opportunity to fairly compete for these valuable contracting opportunities,” said Andrew Miller, a shareholder in the qui tam group at Baron & Budd.

“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,” said United States Attorney Waldref. “We insisted not only that Hensel Phelps refund the government and pay a hefty penalty for its misconduct, but that it admit to its misconduct.”

The case represents one of the fastest False Claims Act settlements to date, going from Department of Justice intervention to closing in 21 days.

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Law firm Greenberg Traurig LLP commented on the allegations, stating: “These settlements underscore the significant risk of liability for large contractors teaming with small businesses that do not meet the requirements for the size or status they claim. The consequences of resolving such allegations are severe and are not limited to paying a hefty settlement amount. Contractors will also face the ramifications of DOJ publicizing the settlement amount and allegations, and could be subject to suspension and debarment proceedings by federal agencies after the settlement with DOJ has been finalized.”