Other information
BAMKO LLC, of Cincinnati, has received disabled-vet construction contracts worth about $18 million since forming in 2007. That includes an ongoing $2.5 million renovation contract for the U.S. Army Corps of Engineers at WPAFB. The VA earlier this month recommended indefinitely banning BAMKO from working for the federal government, alleging its owners, funeral director and veteran James C. Battle III and Evans Nwanko, president of Megen Construction, misrepresented BAMKO as a veteran-owned business.
Chevron Construction Services, of Mason, received disabled vet contracts worth a minimum of $2.3 million in disabled veteran contracts in Ohio and Kentucky. Owners Michael Clare, of Oakwood, a veteran, and businessman Majid Samarghandi, of Mason, face a four-year ban from obtaining federal contracts after the Small Business Administration ruled that Samarghandi’s Triton Services provided employees and the offices, equipment, computers and tools for Clare’s Chevron Construction Services ; held the required licenses ; and even paid Clare’s salary.
TeamUS, of Pittsburgh, Pa., has received disabled-veteran contracts worth at least $53.5 million since 2007, including a June 2010 contract worth $3.4 million to renovate a building at the Dayton VA Medical Center. TeamUS was temporarily disqualified as a disabled-vet company in January 2009. An investigator for the Government Accountability Office in Dec. 2009 called TeamUS a “shell company” for the James Corp., another Pittsburgh-based construction company that did not own its own building or construction equipment. TeamUS’s owner, Chuck Martino, was a restaurateur and veteran who lived 80 miles away. TeamUS was reinstated to receive disabled veteran contracts in April 2009 after it distanced itself from James Corp.
Criminal cases
Atlanta: Arthur Wayne Singleton, 62, was indicted last November and accused of using a bedridden Vietnam veteran’s name to illegally win about $2.8 million disabled-vet contracts. Singleton and the unnamed veteran formed a company called “GMT Mechanical-Singleton Enterprises,” which was awarded a $776,000 contract to replace a roof at the VA medical center in Cleveland in 2009. Singleton faces charges of wire fraud and conspiring to defraud the U.S. government.
Kansas City: Warren K. Parker, 69, was indicted on numerous counts last June after prosecutors say he invented a decorated military career in order to qualify for disabled-vet contracts. Parker’s company, Silver Star Construction, won more than $6 million in contracts in part based on Parker’s self-reported disabled-veteran status. Parker claimed he’d served three tours in the Vietnam War, collecting three silver stars and three purple hearts, among other accolades. He actually served five years in the 1960s in the Missouri National Guard, never leaving the state, prosecutors said. He was not disabled during his service. Parker’s wife, Mary K. Parker, and son, Michael J. Parker, also face charges, as does Thomas J. Whitehead, for whom Parker is accused of passing work through.
St. Louis: Michael Woodling, 53, and Joseph Madlinger, 71, pleaded guilty last month to creating a shell company and conspiring to bribe a VA contracting officer with sporting event tickets, meals and trips to a gentlemen’s club. The two recruited a veteran to set up a shell company to qualify illegally for disabled-vet work. The company, CJMS Contracting LLC, received $3.4 million in VA contracts. VA contracting officer Russell Todd, 69, pleaded guilty earlier this month to accepting $20,000 worth of illegal gratuities from Woodling and Madlinger.
Albuquerque, N.M.: Max R. Tafoya, 62, and Tyler Cole, 39, were charged Feb. 9 with illegally obtaining almost $11 million in disabled-vet contracts for M.R. Tafoya Construction. Prosecutors allege that Tafoya paid his step-brother, a service-disabled veteran who lives in Florida, $600 a week in exchange for being allowed to use his name for his company. Tafoya falsely claimed he sold M.R. Tafoya to his cousin for $100,000, prosecutors said. Tafoya and Cole are charged with counts of conspiracy and fraud, and Tafoya is charged with making false statements.
Brooklyn, N.Y.: John Raymond Anthony White, 46, was convicted last April of falsely claiming to be a veteran to help him qualify for more than $16 million in government contracts. When questioned by investigators, White lied and said another person was the owner of his company, Mitsubishi Construction Corporation. White is scheduled to be sentenced next month on fraud and other charges. He faces up to 75 years in prison and a maximum $3.75 million fine.
Abusing the program
The following companies either were based in Ohio or performed taxpayer-funded work at federal facilities here. All of them were at some point deemed ineligible for a program that gives special preference for government contracts to businesses owned and controlled by disabled veterans. In each case, officials ruled that the disabled vet wasn’t really in charge.
Brigadier Construction Services, of Twinsburg: The VA disqualified Brigadier from disabled-vet contracts in February 2011. U.S. attorneys said a company that rented office space and shared employees with Brigadier actually controlled the business, not veteran owner Shawnte’ Thompson. The company has received $57.7 million in disabled veteran contracts since 2007.
Diversified Veterans Mechanical Services ,of Dayton: Wasn’t eligible for the program when its joint venture, AquaCare Services, submitted a bid for work at Wright-Patterson Air Force Base. The company withdrew its appeal of the ruling in September.
Everything Parking, of Charlotte, N.C.: Obtained $6.2 million in set-aside contracts in nine states, using the disabled-vet status of Curtis Springer, owner of Good Shepherd Village nursing home in Springfield. The company’s president is the son of Springer’s girlfriend.
Firewatch Contracting, of Florida: Officials ruled disabled vet Melvin Lowe, an Akron area insurance man, didn’t control the Tampa company because supermajority voting requirements in its bylaws prevented Lowe from making key decisions. Firewatch obtained $22.6 million in set-aside contracts from the VA, Air Force and Agriculture Department. The company has been reinstated.
First Capital Interiors, of Chillicothe: Allen Ballew gave his 51 percent share in a money-losing mom and pop business to his disabled-vet son, Eric, who was living 2,000 miles away near Los Angeles and working in construction and as a recording engineer and hip-hop music artist. Eric Ballew told the Daily News he was in charge and planned to relocate to Ohio, but an administrative judge blocked his bid for a job at the Chillicothe VA Medical Center. “We were presented as, 'The dad’s just trying to take advantage of the son’s (disabled veteran) status,’” Ballew said. “It wasn’t like that at all.”
United Medical Design Builders, of Kansas: The Small Business Administration ruled that disabled vet David Dial didn’t control the business and was thus ineligible for a 2010 contract with the VA’s National Energy Business Center in Seven Hills, Ohio, south of Cleveland. The company now is verified and has done $26.8 million in defense contracting.
Valor Contracting of Northwood, near Toledo: Officials ruled disabled vet Lorne Trainor didn’t control the company because he was bound by contractual language that prevented him from leaving Valor without the consent of his non vet partner, Derek W. O’Loughlin, or competing against it.
VetIndy of Chesterland, east of Cleveland: Officials pulled VetIndy’s $5.8 million contract with the Army Corps of Engineers because its operating agreement required that disabled vet Matthew Herchick’s partner, IE Group Inc., agree to major decisions.
About the law
Congress launched the Service-Disabled Veteran-Owned Small Business program in 2003 to help America’s wounded warriors make the transition to successful entrepreneurs.
Every federal agency has a goal of awarding at least 3 percent of the value of its contracts to businesses owned and controlled by veterans who have been deemed to be disabled while in military service. Contracts can be set aside so competition is limited to disabled-vet companies or, under certain circumstances, awarded without competitive bidding.
Veterans must have documentation of a service-connected disability. Any level of disability is enough to qualify a vet for the program.
Participating businesses must be at least 51 percent owned by one or more disabled vets. A disabled vet must hold the highest office and control the company’s long-term and day-to-day decision-making.
Companies must be small businesses as defined by the North American Industry Classification System.
Depending on the kind of business involved, participating companies must use their own employees, as opposed to subcontractors, for 15 percent to 50 percent of the cost of the work.
Source: U.S. Small Business Administration
Federal agencies have awarded tens of millions of dollars in taxpayer-funded contracts to businesses operating in Ohio that claimed to be owned and controlled by military veterans with service-related disabilities, only to conclude the companies lied to the government when they said a disabled veteran was in charge, a Dayton Daily News examination has found.
The businesses were part of the federal Service-Disabled Veteran-Owned Small Business program, which gives small companies owned and operated by America’s wounded warriors special preference in obtaining lucrative government contracts.
Government watchdogs say hundreds of millions of dollars in public funds have gone to ineligible companies under the program, which calls upon all federal agencies to award at least 3 percent of the value of their contracts to disabled-vet businesses.
In some cases, business owners pretended to be decorated war heroes to obtain set-aside contracts, or served as front men for large corporations. More often, disabled veterans improperly partnered with other small businesses, having little say in the running of the companies and bringing almost nothing to the table except their disabled-vet status.
A handful of businessmen nationwide have been criminally charged, and 100 more criminal investigations are under way, according to the Department of Veterans Affairs Inspector General’s office.
The victims, experts say, are companies that are legitimately owned and operated by disabled veterans who may lose contracts to bogus firms.
“We had a lot of businesses that were stealing the valor from those who were in fact service-disabled veterans,” said Bob Hesser of VET-Force, a veteran entrepreneur task force in the Washington, D.C., area.
The United States Department of Veteran Affairs is facing political pressure to reduce fraud and abuse in the program while not making regulations so strict that legitimate companies can’t make it in the program.
“There’s been a lot of discussion on (Capitol Hill) about ineligible firms benefitting,” said Tom Leney, director of the National VA’s small and veteran business programs. “If we can’t solve that problem, we put the whole program at risk.”
The Daily News examined thousands of public records and conducted interviews with veterans, federal officials and politicians. The newspaper found that tens of millions of dollars in contracts for work performed across Ohio, including at the Dayton VA Medical Center and Wright-Patterson Air Force Base, went to companies whose disabled-vet ownership has been questioned by government officials. In some cases, the system eventually caught and banned companies and their owners. In others, federal officials allowed companies to change their business structure to meet eligibility requirements.
Companies under scrutiny
• Disabled vet Michael Clare of Oakwood and businessman Majid Samarghandi of Mason were banned from federal contract work until late 2015 after the Small Business Administration ruled that Samarghandi’s Triton Services and Clare’s Chevron Construction Services were interconnected. Triton provided employees and the offices, equipment, computers and tools for Chevron; held the required licenses; and even paid Clare’s salary. The month after the SBA’s final ruling in 2010, Clare and Samarghandi set up another company, AVETCO LLC, which still appears as a disabled-vet company on an EPA website. They did not return calls seeking comment. Prior to its debarment, Chevron obtained $2.3 million in contracts from the Department of Veterans Affairs.
• Everything Parking of Charlotte, N.C., won $6.2 million in government set-asides in nine states based on the disabled-vet status of Curtis Springer, who owns Good Shepherd Village nursing home in Springfield. The SBA ruled the company actually was controlled by its president, Brian Haupricht, who is the son of Springer’s girlfriend. The SBA allowed it to change its corporate structure to become eligible for set-asides, but Springer is no longer majority owner, and the company dropped out of the disabled-vet program, Haupricht said. Springer didn’t return phone calls.
• Cincinnati funeral director and disabled vet James C. Battle III in July 2007 formed BAMKO LLC with Evans Nwankwo, whose Megen Construction Co. worked on major Cincinnati developments, including the Great American Ball Park, the National Underground Railroad Freedom Center, Fountain Square and Macy’s corporate offices. BAMKO won about $18 million in government contracts, most of them in Ohio, before federal officials ruled company officials misrepresented BAMKO as a disabled-vet business. The VA blacklisted Battle, Nwankwo and their companies in March from receiving new federal contracts, but BAMKO is completing $4.1 million in work for the Army Corps of Engineers at Wright-Patt. A public relations agent for Nwankwo said he is preparing a written response to the blacklisting. Battle didn’t return phone calls.
• Pittsburgh-based TeamUS won a $3.4 million contract at the Dayton VA Medical Center in June 2010, just months after being called a “shell company” by a government investigator in a congressional hearing. In October 2009, the Government Accountability Office named TeamUS as one of 10 ineligible companies that received $100 million worth of contracts. The company’s veteran owner, Chuck Martino, was a restaurateur with no significant construction experience before starting TeamUS in 2007. A private investigator hired by a competitor found TeamUS didn’t have its own equipment and shared offices and executive staff with another construction company, James Corp. TeamUS was disqualified from the program in 2009 but readmitted after cutting ties with James. The VA lists TeamUS as a verified disabled vet-owned business. Martino didn’t return phone calls.
• Brigadier Construction Services of Twinsburg was banned in February 2011 after the SBA ruled its owner, disabled vet Shawnte’ Thompson, did not control the business. In a March 2011 court filing, U.S. attorneys said Brigadier leased office space from and shared 36 employees with a nonvet construction firm, McTech. The government also said Thompson had no relevant construction experience before joining Brigadier. The company sued the VA last March, but dropped the lawsuit six months later. Brigadier has won $57.7 million in set-asides nationwide, $21 million of that in Ohio. Company officials didn’t return a phone message.
Thompson started another company, Commandeer Construction Services, in April 2011 and began seeking disabled-vet contracts. The VA also rejected that company.
History of the program
Congress established the Service-Disabled Veteran-Owned Small Business program in 2003 to help veterans who suffered service-related impairments make a successful transition to the business world. An estimated $10.8 billion in federal contracts are issued through the program annually; roughly half through the Defense Department and one-third through the VA.
Administered by the U.S. Small Business Administration and individual government agencies, the program is governmentwide. But Defense by far outspends all other agencies on disabled-vet contracts. The VA claims to award nearly 17 percent of its contracts to disabled vets, but critics say the percentage is inflated because of the number of ineligible firms that have received contracts.
The program limits bidding for certain contracts to small businesses that are majority-owned and whose day-to-day operations and long-term strategies are controlled by disabled vets, thereby easing the competition. The program is dominated by construction and information technology companies.
“You have companies run by service-disabled veterans that are the only ones able to compete for contracts that are quite large,” said Edward DeLisle, a Philadelphia attorney who specializes in government contracting. “It’s a huge benefit.”
But because the government sought to encourage participation, companies for years had to provide only a medical form proving a veteran’s disability, unless their status was later challenged by a competitor. DeLisle said that led ineligible businesses, some fraudulent, to flood the program, especially after the construction industry collapsed in 2008.
“It was sort of like the wild, wild west of small business programs,” DeLisle said.
That began to change, experts say, after the GAO in October 2009 reported that 10 businesses it studied had received $100 million in disabled-vet contracts through fraud or abuse of the program. The GAO found some of the purported vet businesses were fronts for large, sometimes multinational corporations. The report startled veterans groups and politicians.
“It surprised everybody within the VA. That’s pretty embarrassing, you know?” said Dennis DeMolet of Kettering, a disabled Vietnam veteran who helped to shape the program as a member of the SBA’s Advisory Committee on Veterans Business Affairs from 2004-2007. “It created havoc. It was the shotgun approach with Congress for getting things corrected.”
But few companies caught defrauding the disabled-vet business program were punished. In a follow-up report in July 2011, the GAO found six of the 10 companies continued to claim disabled-vet status in a federal contractor registry.
“In the past, the message was you can cheat and nothing happened and nobody did anything about it,” said Greg Kutz, director of forensic audits for the GAO.
One of the 10 companies in the original 2009 GAO report was TeamUS. The SBA ruled veteran Martino’s only construction experience was with a family-owned plumbing business from 1969 to 1971, and that he lived and managed a restaurant 80 miles away from TeamUS’s offices. The agency also noted that TeamUS executives included two sons of the owner of James Corp., which owned the TeamUS headquarters building.
The SBA in February 2009 disqualified TeamUS, concluding that James Corp. managed the business. A lawyer for TeamUS told the Pittsburgh Post-Gazette in 2009 the SBA’s ruling was a “travesty.” The SBA reinstated TeamUS three months later after the company changed its operations to become compliant with the program.
TeamUS continued to seek disabled-vet contracts, and in June 2010 the company won a $3.4 million contract from the Dayton VA Medical Center. In a prepared statement, the Dayton VA said it verified TeamUS’s eligibility before awarding the contract.
“While TeamUS, as well as other companies, may have been ineligible in the past, some companies were deemed ineligible due to mistakes in their documentation. As such, some ineligible companies have become eligible over time.”
But the GAO’s Kutz told the Daily News that TeamUS and the other nine companies in the 2009 report defrauded and deceived the government, and “someone who used intentional deception to get government money” should be banned from getting government work.
In the wake of the GAO’s 2009 findings, Congress required the VA’s Center for Veterans Enterprise to verify the eligibility of all 10,000-plus businesses on the VA’s program rolls. The center issued a letter in December 2010 to the businesses, telling them they must prove ownership and control within 90 days or be cut from the eligibility list.
The verification process has caused a bottleneck for entrepreneurs seeking to access the program. And the sudden shift from “self-certification” to government verification has caused small businesses months of delays, mountains of red tape and significant costs in some cases before they can do business with the feds, veteran advocates say. Some legitimate businesses, they say, are being eliminated by the process.
“If the certification continues the way it is, it’s going to hurt a lot of people who have served their country honorably,” DeMolet said.
One IT company, he said, lost a multimillion-dollar set-aside contract after the VA determined its disabled-vet president didn’t have the technical skills to operate the business, which he had successfully run for years.
“That’s like saying (former General Electric Chief Executive) Jack Welch doesn’t know how to make jet engines,” DeMolet said. “Well, he doesn’t, but he knows how to sell them.”
Problems with verification
The VA is doing a “pathetic” job of verification that cuts out legitimate businesses, said disabled vet Hardy Stone, editor of Vet Like Me, a Maryland-based newsletter, about the set-aside program.
“Almost 50 percent of those who have done business with the VA for years have been disqualified for the program,” he said. “Their livelihood has depended on these large Veterans Affairs contracts. Because of the speed (of the verifications) and very stiff requirements that the (VA) is imposing, they’re missing out on contracts that are keeping them alive.”
Since verification began, 1,800 purported disabled-vet companies have dropped off the rolls. A VA official told Congress the “vast majority” of ineligible firms self-reported problems that disqualified them.
The VA said it could not immediately provide the Dayton Daily News with a list of disqualified companies. But the newspaper found that almost half of the 231 companies that have received contracts under the program in Ohio since 2007 no longer are on the VA’s list of approved disabled-vet businesses.
U.S. Sen. Sherrod Brown, D-Ohio, said two kinds of companies were removed from the list: “One, firms that deserve to be removed because they are defrauding the government and, two, mom and pop shops who don’t have the ability to comply with the registration requirements.”
Brown, a member of the Senate Veterans Affairs Committee, said committee chair Sen. Patty Murray has called for a study to probe why the firms were eliminated.
“I think that will help us in the next step,” he said. “How do we get legitimate businesses in here who find the current rules too complex? That’s a hard line to walk. (You don’t want to) make it too simple, because you want to root the fraud out. That’s a tightrope the GAO is suggesting that we walk here.”
The GAO isn’t the only watchdog group critical of weak oversight in the program.
A July 2011 study by the VA Inspector General’s office found the VA improperly awarded $46.5 million in contracts to 32 of 42 “statistically selected” businesses it audited during the 12-month period ending May 31, 2010. That’s a 76 percent ineligibility rate. The auditors projected that the VA annually awards 1,400 contracts, valued at $500 million, to ineligible vet-owned and disabled vet-owned companies.
In February, the Defense Department’s Inspector General found the department awarded six contracts valued at $1.9 million to firms that didn’t even claim to be disabled-vet businesses and another 27 contracts worth $340 million “to contractors that potentially misstated” their disabled-vet status. Investigators said the department should establish its own verification process. Defense officials responded that contracting could be tightened up, but declined to require verification.
“Adopting verification practice similar (to the VA) would not provide a net benefit to our service-disabled veterans who own small businesses,” Andre Gudger, director of the Defense Department’s Office of Small Business Programs, wrote in a January response to the inspector general’s report. He said verification is “resource-intensive, and “many veterans have indicated that the VA’s verification system is harmful to them.”
The GAO’s Kutz said he doesn’t buy that argument. “You’re actually denying access (to legitimate veteran firms) by not having a good verification process in the first place,” Kutz said.
The GAO is pushing the VA to make improvements in its process, including requiring random inspections of “high-risk” companies. But the lack of verification by Defense is the top problem now facing the program, Kutz said.
Some companies the VA ruled ineligible continue to seek disabled-vet contracts from other federal agencies, officials said.
“The VA has a ways to go, but things are better,” Kutz said. “We need to get the military on board.”
The inconsistency in enforcement between Defense and the VA was underscored in the Defense Inspector General’s February report. Investigators noted that Defense awarded a $1.3 million contract for work at Wright-Patterson to a company the VA had disqualified.
In November 2009, the SBA found that the disabled-vet owner of Michigan-based Piedmont Contracting, Erick Ortiz, didn’t hold the highest position in the company, and his partner needed to sign off on expenditures greater than $5,000.
In September 2010, the VA cancelled four Piedmont contracts, including a $391,000 job at the Chillicothe VA Medical Center. That same month, the Defense Inspector General informed Wright-Patt leadership that Piedmont was no longer on a VA list of eligible firms, and asked the Air Force to confirm the business was veteran-owned.
But Piedmont’s job at WPAFB continued, and the Air Force has since given Piedmont another $700,000 in orders.
The IG’s report included a January letter from an unnamed Air Force official who wrote that since the contract was 90 percent complete, officials at WPAFB decided reviewing the firm’s eligibility “would not be prudent.”
Ortiz called his firm’s disqualification a technicality. The SBA reinstated Piedmont after the company made changes, but Ortiz became frustrated and never sought re-verification from the VA, he said. “It got to be such a headache that we said ‘the heck with it,’” said Ortiz, who continues to seek disabled-vet contracts through another company.
Honest firms also disqualified
The VA’s Leney said many of the 1,800 firms disqualified from VA work weren’t trying to deceive the system.
“We had a bunch of people who were either ignorant of the regulations, or their business model just didn’t fit the regulations,” he said. The agency is trying to head off problems by posting on its website the top reasons honest firms are disqualified.
Last year, the VA rejected 61 percent of applicants to the veteran business program. So far this year, the number is 28 percent. The average processing time is also down from 126 days to 55, Leney said.
Verified firms must reapply every three years. In the interim, the VA plans to ramp up random unannounced site visits to hold businesses accountable.
“With that, we think we’ll be able to maintain the integrity and weed out the people who are intending to defraud,” he said.
In September, the U.S. Senate passed a bill that would stiffen penalties for those caught defrauding the program. Sponsored by Sen. Olympia Snowe, R-Maine, it would also make the VA responsible for verifying all companies seeking disabled veteran contracts. But the bill has stalled in the House of Representatives.
U.S. Rep. Bill Johnson, R-Marietta, said he’s skeptical about the VA’s ability to verify contractors effectively. For now, he’s taking a wait and see approach.
“We’re going to continue to work with the GAO to find the balance and find the oversight necessary to make sure that this program is implemented and enforced properly,” said Johnson, an Air Force veteran who chairs the House Veterans Affairs Subcommittee on Oversight and Investigations. “In the meantime, the (veteran-owned business) community can use the existing protest system to weed out those unqualified firms that slip through the cracks.”
Contact Tom Beyerlein at (937) 225-2264 or tbeyerlein@DaytonDailyNews.com
Contact Andrew J. Tobias at (937) 225-2494 or andrew.tobias @coxinc.com
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