U.S. Attorney Reaches Settlements For Violations Of The Federal Disadvantaged Business Enterprise Regulations

PHILADELPHIA – Louis D. Lappen, First Assistant United States Attorney for the Eastern District of Pennsylvania, announced today that the United States had reached a civil settlement with Ernest Bock and Sons, Inc. (“EBS”) resolving civil claims concerning EBS’ improper use of United States Department of Transportation (“DOT”) funds for two Southeastern Pennsylvania Transportation Authority (“SEPTA”) construction projects.  In addition, he announced that the United States filed a civil lawsuit and entered into a consent judgment with Atrium International (“Atrium”), the DBE who improperly received USDOT funds in connection with the two SEPTA construction projects.  To resolve the government’s civil claims against it, EBS has paid the United States $450,000 pursuant to the settlement agreement; Atrium has agreed to pay $45,000 pursuant to the consent judgment.

First Assistant Lappen stated: “EBS and Atrium subverted the aims of the U.S. Department of Transportation’s Disadvantaged Business Enterprise program and thus denied qualified DBEs the opportunity to participate in the program and to do the work that SEPTA commissioned.  These civil resolutions demonstrate the Department of Justice’s commitment to ensure that contractors who receive federal funds will follow the law.”    

“As evidenced by this settlement agreement entered into by EBS and the consent judgement with Atrium, we remain steadfast in our commitment to maintaining the integrity of the DOT’s DBE program,” said Douglas Shoemaker, regional Special Agent-in-Charge of DOT’s Office of Inspector General.  “DBE fraud harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts.  Working with the Secretary of Transportation and other DOT leaders, and our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse and violations of law.” 

Background for the DOT’s DBE Programs

Beginning in 1980, the U.S. Department of Transportation issued regulations to increase the participation of minority and disadvantaged business enterprises in federally-funded construction contracts.  To become certified as a DBE, a company must be owned and controlled by socially and economically disadvantaged individuals.  Recipients of DOT construction grants, such as SEPTA, must establish a DBE program that sets goals for the percentage of a project’s work that should be awarded to DBEs (“DBE goals”). 

General contractors may only count funds paid to DBEs toward the attainment of DBE goals if the DBEs performed a “commercially useful function.”  A DBE does not perform a “commercially useful function” if its “role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation.”  A DBE subcontractor performs a “commercially useful function” when it is responsible for the execution of the work of the contract; it actually performs, manages, and supervised the work involved; and it furnishes the supervision, labor and equipment necessary to perform its work. 

EBS’ and Atrium’s Fraud

EBS and Atrium served as the general contractor and DBE contractor, respectively, on two projects commissioned by SEPTA that were funded by DOT: 1) the renovation of the Folcroft, Clifton-Alden and Morton rail stations (S788407) and 2) the R5 signage project (S781109).  The DBE goals for the two projects were 13 percent and 7 percent, respectively. 

Although Atrium was listed as the DBE on these two SEPTA projects, it never performed any useful commercial functions on the projects between 2010 and 2011.  Instead, EBS selected and used a non-DBE subcontractor to complete the duties that Atrium was supposed to perform.  Atrium was aware of this arrangement and accepted a commission for improperly lending its DBE status and acting as a “pass-through” on these projects.  EBS falsely certified to SEPTA that Atrium was performing the delegated DBE tasks on the projects.  Furthermore, Atrium submitted certified payrolls to the Department of Labor that falsely claimed that the individuals performing the work were its employees and acting under its supervision when that was not true.  Atrium and EBS pursued that false reporting after they had been criticized in a 2010 Philadelphia Office of Comptroller’s Report for violating Philadelphia Minority Business Enterprise during a construction project at the Philadelphia Airport.    

As part of its settlement, EBS has paid the government $450,000.  Atrium International has agreed to pay the government $45,000 in connection with a stipulated consent judgment entered on December 21, 2016 by Judge O’Neill. 

For the United States Attorney’s Office for the Eastern District of Pennsylvania, this investigation and settlement was handled by Assistant United States Attorney Eric D. Gill.  

The claims settled by this settlement agreement and consent judgment are allegations only, and there has been no determination of liability.