Pennsylvania Steel Erector Indicted In DBE Pass-Through Scheme And Suspended On Federally Funded Contracts

If you are a prime contractor working on federally-funded transportation projects, beware of fraud involving the U.S. Department of Transportation’s disadvantaged business enterprise (DBE) program. A recently exposed “pass-through” scheme involving $27 million in federally-funded contracts scheme was engineered together by subcontractor Century Steel Erectors Co., and WMCC, Inc., a certified DBE.

The scheme worked like this: Century Steel used WMCC as a “front” to secure profits on DBE subcontracts and actually found, negotiated, coordinated, performed, managed, and supervised the DBE subcontracts that were awarded to WMCC, including negotiating crane rentals, ordering supplies and materials, and recruiting union workers.  To conceal the scheme, Century Steel used WMCC letterhead and email accounts when communicating with prime contractors and PennDOT officials. Century Steel possessed WMCC business cards, t-shirts, and hard hats, as well as magnetic WMCC placards to conceal Century Steel logos on construction vehicles. In return, WMCC received a fee for its participation in the scheme, which resulted in approximately $1.8 million in illicit proceeds.

Watson L. Maloy, the owner of WMCC, has already pleaded guilty to conspiracy in connection with the fraud scheme, and WMCC has been permanently debarred by PennDOT.

Now it’s Century Steel’s turn in the spotlight.  On November 8, 2015, a federal grand jury returned a fourteen count indictment charging Donald R. Taylor, the president and owner of Century Steel, with conspiracy, mail fraud, wire fraud, and money laundering.  On January 7, 2016, the Federal Highway Administration (FHWA) suspended and proposed the debarment of Century Steel and Taylor from participating on federally funded contracts.

This case is yet another reminder that contractors who evade the DBE rules on federally-funded transportation contracts are at serious risk for criminal penalties.  And, as in the recent Weber Steel case, the Century Steel case provides a lesson for prime contractors who must comply with the US DOT DBE rules and use DBEs to meet subcontracting goals.

While Taylor and Maloy spearheaded the fraud scheme, contractors who used WMCC on their prime contracts with PennDOT to satisfy stated DBE goals are equally at risk of civil or criminal penalties if they knew that WMCC was a sham DBE, or if they failed to do proper due diligence to determine that WMCC was a performing a “commercially useful function” on their contracts.

Prime contractors are now duly forewarned: if you don’t conduct even basic due diligence before committing to and using a DBE to meet a DBE subcontracting goal, then you run a serious risk of severe civil penalties and a potential for criminal liability.

If you need assistance with this complex area of government contracting, call or email me for a free consultation. Better to be safe than sorry.

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Posted on by Christopher I. McCabe, Esq. in DBE/MBE/WBE, PennDOT Comments Off on Pennsylvania Steel Erector Indicted In DBE Pass-Through Scheme And Suspended On Federally Funded Contracts
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