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From Antitrust Law Daily, November 19, 2014

Washington Gas Energy Systems admits to conspiring to obtain federal contracts

By Jeffrey May, J.D.

A contractor that provided energy management services for federal buildings has agreed to pay more than $2.5 million in fines and monetary penalties for conspiring to commit fraud on the United States by illegally obtaining contracts that were meant for small, disadvantaged businesses.

Today, the Department of Justice announced that it filed a criminal information yesterday in the federal district court in Washington, D.C., charging Washington Gas Energy Systems (WGESystems) with one count of knowingly and willfully conspiring to commit major fraud on the United States. Under a deferred prosecution agreement (DPA) reached with the U.S. Attorney’s Office for the District of Columbia and the Department of Justice Antitrust Division, WGESystems has agreed to pay a fine of $1,560,000 and a monetary penalty of $1,027,261 within five days of the approval of the agreement by the court. The government will recommend the dismissal of the Information in two years, provided WGESystems fully cooperates with, and abides by, the terms of the DPA.

According to the Justice Department, WGESystems conspired with a company that was eligible to receive federal government contracts set aside for small, disadvantaged businesses with the understanding that the business would illegally subcontract all of the work on the projects to WGESystems. The contracts were awarded through the Small Business Administration 8(a) Business Development Program. As a result of the conduct, which focused on making federal buildings in the Washington, D.C., area more energy efficient, WGESystems was able to capture a total of eight contracts worth more than $17 million. The company that was awarded the government contracts was allowed to keep 5.8 percent of the value of the contracts for allowing WGESystems to use the company’s small business status to win these contracts, it was charged.

WGESystems is a wholly owned subsidiary of WGL Holdings Inc., which is a public utility holding company serving the Washington, D.C. metropolitan region. WGESystems, until 2010, had a contract with the U.S. General Services Administration (GSA) for the provision of energy management services for federal buildings. In 2010, the federal government changed its practices, and contracts were to be awarded through the 8(a) program. To qualify for the 8(a) program, a business must be at least 51 percent-owned and controlled by a U.S. citizen who is socially and economically disadvantaged.

The government alleges that WGESystems, along with an 8(a) company it used to obtain these contracts, and others, engaged in and executed a scheme to defraud the SBA and GSA by, among other things: concealing that WGESystems, which was not eligible for the aforementioned SBA contracting preferences, exercised impermissible control over the 8(a) company’s bidding for and performance on GSA contracts; and misrepresenting that the 8(a) company was in compliance with SBA regulations pertaining to work on these contracts, including that the company’s employees had performed the required percentage of work on these contracts. Through these unlawful efforts, WGESystems and the 8(a) company with which it conspired obtained, at least, approximately $17,711,405 in U.S. government contracts related to work at eight different federal buildings.

“Conspiracies to violate federal procurement laws will not be tolerated,” said William Baer, Assistant Attorney General in charge of the Antitrust Division, in announcing the action. “Taxpayers deserve to have contracting processes that are fair and competitive, and fully comply with applicable laws and regulations.”

Companies: Washington Gas Energy Systems; WGL Holdings Inc.

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