Defraud Contractors Get Contracts

Sunday, July 23rd 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — Hundreds of companies prosecuted or sued for defrauding the government can still receive federal business — and many have gotten new contracts — because agencies chose not to ban them, a computer analysis shows.

The companies range from a Texas contractor convicted of selling faulty Coast Guard windshields to an environmental cleanup company convicted of bribery.

Vice President Al Gore wants to expand the federal debarment program to exclude businesses with troublesome labor or worker safety records — even though the program is not debarring many of those already convicted or sued for fraud.

The computer analysis by The Associated Press found many companies with a history of fraud turned right around and got new federal contracts. Some had multiple court cases against them.

Saybolt Inc., a petroleum products inspection company based in Houston, pleaded guilty in 1998 to submitting false lab analyses to the Environmental Protection Agency. The company also admitted to arranging a $50,000 bribe to Panama's government.

At the time of the plea, government officials spared few words for a company they said ``betrayed the public's trust and cheated all of us.'' But the agency did not ban the company from future business, even though the judge who fined the company $4.9 million suggested it as a possible punishment.

``You run the risk of being investigated, prosecuted and, perhaps worse, debarred from engaging in that business,'' the judge said during sentencing.

EPA and company officials said Saybolt was given another chance because it was taken over by new management and implemented state of the art technology to ensure its tests are not rigged.

``The government does set a high standard when they don't debar a company, and that is rightfully so,'' Saybolt general counsel John Denson said. ``We were fortunate as new management of Saybolt to demonstrate our commitment to those high standards.''

The AP identified 1,020 companies that were sued or prosecuted for fraud over the past five years. The companies were identified using court records, news stories, government documents obtained under the Freedom of Information Act and inspector general reports.

AP checked the companies against a master list of contractors barred from federal business. The analysis found 737 companies out of the 1,020 remained eligible for future contracts.

``There is a continuing pattern of fraud and abuse in some of our largest contractors. The American people have every right to be outraged at this,'' said Sen. Tom Harkin, D-Iowa, who has tried to highlight the problem for a decade.

Harkin assembled a list of 103 defense contracts where the government was defrauded. Only four cases led to bans.

The AP review found numerous examples.

Stewart & Stevenson Services of Houston was indicted in 1995 for conspiracy, fraud and making false statements involving a contract to provide generator equipment to the Air Force. The government temporarily suspended the company, which reached a plea deal and paid $7 million in criminal penalties and restitution.

The company got its suspension lifted by signing an ``administrative agreement'' and promising to change its business practices. It recently ran into trouble with the government again.

After receiving a $1.4 billion contract to build 5,000 Army trucks and 1,000 trailers, the company produced trucks with faulty drive shafts that caused one truck to flip and another to land on its side. The Army said the vehicles could not be driven above 30 mph until Stewart & Stevenson fixed the problem. The company wants the Army to cover the $40 million repair bill.

Perkins Aircraft Services of Fort Worth, Texas, remains eligible for federal business even after pleading guilty in late 1997 to falsely representing it repaired 14 windshields for Coast Guard rescue jets when the windshields were not airworthy.

Company owner Jim Perkins blamed the problem on a fired employee and said the issue of debarment ``didn't matter much to us because we don't pursue any military contracts.'' The company occasionally works as a subcontractor on the government's commercial aircraft.

Though a fellow Democrat, Harkin scoffs at Gore's proposal to expand the program to labor violators when so many fraud cases are slipping through. ``We don't have the resources to do something like that,'' he said.

Federal officials offer a variety of reasons why contractors remain eligible. Some agencies only work at it part time.

``We're not a large player in the grand scheme of things,'' said Dean Titcomb, a senior procurement analyst at the Interior Department, which bans only a few companies every three or four years.

``Usually the cases are very solid, a conviction or some particularly bad contract,'' he said.

In contrast, the Veterans Affairs Department has banned about 700 companies and aggressively audits its contractors. If fraud is detected, ``unless you are looking at the second coming of Christ, then you will get debarred,'' said Gary Krump, deputy assistant secretary.

At the Pentagon, contractors often have a specialty service with no competitors, and banning them is deemed to hurt national security.

Many health care companies, such as nursing homes accused of defrauding Medicare, are not banned because officials fear their patients will be penalized.

About 24,000 companies or individuals are barred from doing business with the government for infractions that range from drug-free workplace laws to embezzlement and contract fraud. The bans can range from indefinite to just a few years. The list is maintained by the General Services Administration, and agencies are required to check it before awarding contracts and grants.

The AP review found bad contractors can slip through with a simple name change.

Environmental Health Research and Testing in Lexington, Ky., and one member of the Sabharwal family were banned from government business after being convicted of bribing officials in 1995.

Rather than close their doors, the family drained the company's assets and went back to federal contracting under the name Environmental Chemical Corp., prosecutors allege.

By the start of this year, ECC had secured about $55 million in new federal contracts.

Sabharwal family members were indicted in May on a variety of new charges, including that they abused the Small Business Administration's minority-owned business program to get new federal contracts.

James Walsh, an attorney representing one of the Sabharwals, said the family was entitled to the minority-owned business and dismissed the charges as ``bogus.''

The review suggests the debarment program catches many smaller companies on their first offense while larger companies with more resources preserve eligibility despite multiple lawsuits and criminal charges.

Alliant Techsystems in Hopkins, Minn., was sued three times by the government in the 1990s. The company paid $12 million to settle environmental claims, and $4.5 million to settle charges that managers instructed workers to charge inflated work hours on defense missile contracts.

Separately, the company also paid $228,750 to settle allegations it overcharged the government in an $82 million tank ammunition contract.

Alliant has received $723.6 million in new contracts in 2000 alone. The company says two cases came with subsidiaries it purchased, and all were settled to avoid expensive litigation.

In contrast, Kenneth Hansen, an Abilene, Kan., dentist who provided care to low-income patients, was banned indefinitely from government contracting in the mid-1990s for defaulting on dental school loans. The government, which says he owes about $164,800, even sent letters to his Medicare patients.

``It makes it kind of tough to maintain a practice in a small town with that type of publicity going on,'' Hansen said.