Washington Closure Hanford makes case for dismissing federal lawsuit

Washington Closure Hanford is asking that a federal court dismiss a lawsuit brought by the Department of Justice, which accuses the Hanford nuclear reservation contractor of knowingly awarding small business subcontracts to front companies.

The other parties sued by the Department of Justice in the civil case have recently reached settlement agreements, but claims against Washington Closure are set for trial in June.

Washington Closure held the DOE contract for cleanup along the Hanford Columbia River until most work was completed and the contract expired in September 2016. As part of its contract, it was required to subcontract work to small businesses and to certain categories of small businesses, such as those that were owned by women.

Three subcontracts are at issue in the lawsuit.

Washington Closure issued a subcontract worth about $4 million in 2009 to Phoenix Enterprises Northwest for hauling contaminated materials to a Hanford landfill. The woman-owned company had been formed just four months before by an employee of Federal Engineers & Constructors, or FE&C, of Richland, according to court documents.

The subcontract award was challenged and the Small Business Administration ruled that Phoenix was affiliated with FE&C, which was not eligible for the bid as advertised. The federal lawsuit has claimed that the owner remained a full-time employee of FE&C and her new company used FE&C’s state contractor registration and insurance policy.

Rather than rebid the work, Washington Closure agreed not to claim the small-business credit for the subcontract. However, when the subcontract was modified several times, Washington Closure then claimed small business credit of almost $2.8 million for the work under the modifications, according to the Justice Department.

Washington Closure said the credit taken for the modification was because of a computer program that automatically defaulted to the conditions of the original contract award. When a DOE Office of Inspector General official brought the error to Washington Closure’s attention, the contractor corrected its records.

The Department of Energy recognized the incorrect business size classification as an innocent mistake, Washington Closure said in legal documents.

When the DOE contracting officer learned that the Department of Justice had filed a lawsuit, he sent an email to DOE colleagues saying that he was “all for enforcement, but WCH would not have purposely made such a claim just to make their stats on small business a nano percent better,” according to court documents.

The other two subcontracts at issue were awarded by Washington Closure to Sage Tec as a woman-owned small business.

Sage Tec won an approximately $4.5 million subcontract in November 2010 to clean up chromium contamination near Hanford’s C Reactor. Two years later it won a $15 million subcontract for cleanup of contaminated structures, soil and pipelines in the 300 Area just north of Richland.

The Department of Justice has accused Sage Tec as serving as a front company to pass work through to FE&C.

Washington Closure said in court documents that it relied in good faith on Sage Tec’s self-certification a s a small business and had no reason to doubt its standing as a woman-owned small business. It did not knowingly make a false representation to DOE of Sage Tec’s status, according to Washington Closure.

The owner, Laura Shikashio, “was well known in the Hanford community. She had worked for DOE for several years and also worked for other Hanford prime contractors under contract with DOE as a project manager in remediation projects,” Washington Closure said.

In addition, DOE knew that Sage Tec was heavily relying on FE&C to perform work under the contract and that DOE had no objection, according to court documents. Because of the size of the second subcontract, DOE signed off in writing on the award of the subcontract, according to Washington Closure.

In the larger subcontract’s instructions to bidders, Washington Closure said that the winning bidder would be required to perform at least 15 percent of the work. Sage Tec confirmed it would perform 26.8 percent of the work, Washington Closure said.

The Justice Department’s U.S. Attorney’s Office of the Eastern District of Washington has said that Shikashio, who was married to a former vice president of FE&C, formed a company that lacked relevant experience, equipment and employees. All it had to offer was its name and status as a woman-owned small business, federal prosecutors have alleged.

FE&C paid $2 million in late summer to settle allegations of improper subcontracting, saying it had complied with regulations but wanted to put costly and complicated legal proceedings behind it.

Sage Tec and Shikashio agreed to pay a settlement of $235,000 shortly after that. Sage Tec also vigorously denied allegations, pointing to other Hanford subcontracts it has been awarded and successfully performed the work required. It said it agreed to settle rather than spend at least that much money on continued litigation.

Phoenix Enterprises was not named as a defendant by the Department of Justice.

A hearing is set for Jan. 12 in federal court in Richland on Washington Closure’s request that the lawsuit be dismissed.

This story was originally published November 25, 2017 at 6:24 PM with the headline "Washington Closure Hanford makes case for dismissing federal lawsuit."