The U.S. Department of Justice’s May 10 announcement of the sentencing of a company executive for conspiracy to commit mail and wire fraud in connection with bids on a contract for the repair of refuse carts for the city of Chicago highlights the need for businesses and business leaders to use care to manage and maintain evidence of the honestly and accuracy of minority subcontractor and other representations made when bidding and contracting for government contracts and other conduct in connection with their business dealings with federal, state or local government agencies.
Dishonesty, Misrepresentations On Minority Recruitment Basis of Conviction
A U.S. District Judge sentenced Douglas E. Ritter, the former president of an Illinois refuse disposal container repair company, to serve 16 months in prison and to pay $35,303 in restitution for his participation in a conspiracy to defraud the city of Chicago on a contract for the repair of refuse carts from as early as November 2004 to as late as September 2008. The Justice Department had charged Ritter, along with his business partner Steven Fenzl, in an indictment filed on April 21, 2009, in U.S. District Court in Chicago. Ritter pleaded guilty to the conspiracy on June 3, 2010. Fenzl, a California resident, was found guilty by a jury on Sept. 28, 2010, of one count of conspiracy to commit mail and wire fraud, two counts of mail fraud and one count of wire fraud. Fenzl is scheduled to be sentenced on June 15, 2011.
According to the indictment, Ritter, Fenzl and their co-conspirator conspired to deceive city of Chicago officials about the number of legitimate, competitive bids submitted for the contract. Specifically, the Justice Department charged that Ritter and his co-conspirators fraudulently induced other companies to submit bids for the contract at prices determined by Ritter and his co-conspirators and greater than the price for which Ritter’s company had submitted a bid. The Justice Department also charged that the submitted bids included fraudulent documents indicating that, if awarded the contract, the bidder would enter into subcontracts to buy goods or services for a specified percentage of the contract from a minority-owned business and a women-owned business, as required by the city of Chicago. According to the indictment, Ritter and his co-conspirators also fraudulently certified to the city on Ritter’s company’s bid that it had not entered an agreement with any other bidder relating to the price named in any other bid submitted to the city for the contract.
Doing Business With Governments or Their Subcontractors Carries Special Responsibilities & Risks
While the opportunity to do business with government agencies or their subcontractors can offer valuable business opportunities for many businesses, dealing with government agencies directly or as a subcontractor comes with special obligations and exposures.
Government contractors and subcontractors generally face special bidding and contracting, pricing, employment, subcontracting, purchasing, reporting, audit, attestation and certification and other obligations. While many of these requirements are long-standing, businesses contracting for many projects funded by Stimulus Bill or other legislation passed as part of efforts to stimulate the economic recovery since 2008 often apply to a broader range of businesses, apply stiffer nondiscrimination, audit and other requirements or carry other special obligations beyond those that may have historially applied to similar contracts. Violation of these responsibilities can result in contract termination or penalties, program disqualification, administrative or civil penalties and in some instance criminal prosecution. Since the Obama Administration has identified enforcement of Stimulus Bill and certain other government contracting requirements as a priority, businesses also should be prepared to deal with potentially heightened scrutiny of their conduct. Accordingly, businesses doing business directly or indirectly with federal, state or local governments should take steps to manage their compliance and associate risks.
Risk Management & Compliance Efforts Essential
To minimize exposures to these and other risks, businesses doing business directly with government entities or indirectly providing goods and services as a subcontractor to government contractor should carry out proper due diligence, internal controls and other procedures to manage these risks. As part of these efforts, businesses and their leaders doing business directly or indirectly with government agencies or their subcontractors should strive to:
- Fully understand all contractual, regulatory and other requirements for bidding or participating in the arrangement;
- Carefully audit and monitor their and any subcontractors or supplier’s qualifications and compliance with applicable requirements;
- Establish and administer appropriate credentialing, training, oversight, recordkeeping and documentation, enforcement, and other policies, processes and procedures to manage and monitor compliance; and
- Develop and administer effective processes for reporting, investigation, and resolution of suspected or reported compliance concerns.
Business and their leaders also should develop an understanding of the likely consequences of a charge or conviction of violation of these rules on their business, their contracting eligibility and officers, executives and employees accused or found to have participated in, tolerated or other having other culpability for such violations and processes and procedures for mitigating these risks in the event of a problem.
Because the applicable rules and guidance seem to constantly evolve, anticipating and staying on top of these requirements is critical, but often challenging. For this reason, management also should require or members of its management team responsible for helping the company to maintain compliance periodically to review regulatory developments on a quarterly or monthly basis and to retain documentation of these efforts.
Conducting periodic reviews of issued and impending guidance can help reduce the risk of potential problems and help companies and their management anticipate and meet critical compliance responsibilities as well as anticipate and plan for policy and operational changes and the budgetary, workforce and other resources needed to meet these responsibilities.
Of course, these and other documented efforts to promote compliance also often are invaluable when a compliance problem arises. Since no plan is foolproof, companies and their leaders also should plan for the possibility that members of their workforce may act inappropriately or other issues may result in a compliance concern. If a problem happens, the ability of a company and its management to provide credible evidence of showing the diligent efforts to watch and maintain compliance through these and other prudent activities often is critical to determining the liability and other consequences imposed in response to the problem by regulators, courts, customers and business partners and others with the power to hold the company accountable.
For Added Information or Assistance With These Concerns
If you would like to explore arranging for Board or management risk management training from Ms. Stamer, have questions about your organization’s compliance obligations, or your organization needs advice or other help dealing with these or other risk management, compliance, internal controls or human resources concerns, please contact the author of this update, Board Certified Labor and Employment attorney and management consultant Cynthia Marcotte Stamer here or at (469)767-8872.
Board Certified in Labor and Employment Law, Ms. Stamer has worked with organizations and their leaders to monitor and manage legal and operational risks, manage the performance of employees, subcontractors and other service providers and suppliers, to design, administer and defend risk management and compliance efforts, and other management related activities. As a key component of this work, she helps organizations and their management monitors the employment, employee benefit, and other operationally defined regulatory and other developments impacting their legal compliance and operational risks. She consults to and advises with management about the design, administration, documentation and defense of their compliance and risk management efforts to promote defensibility and operational effectiveness. She also advises and assists management to audit and investigate compliance, performance and other concerns arising in the course of their operations. She represents companies and their management in reporting compliance concerns to, responding to audits or investigations, and negotiating compliance resolutions with the Labor Department, IRS, HHS, FTC, Homeland Security, the Justice Department and state attorneys’ general, state insurance regulators, state health departments and medical licensing boards, and a broad range of other regulatory and licensing agencies and officials. She regularly services as special counsel to companies, board members and officers, employee benefit plan fiduciaries and administrators, insurers and others on health and other managed care, insurance, retirement, severance and other employee benefit fiduciary and insurance litigation and enforcement actions. She also regularly conducts training, speaks and publishes extensively on these and other related matters.
About Solutions Law Press
Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources. Here are some other recent updates that might be of interest to business leaders or members of their teams:
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If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile at here or e-mailing this information here.
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