Hanford contractor settles accusations of using front companies

The 300 Area at Hanford just north of Richland is shown in September 2015, a year before Washington Closure completed most of the environmental cleanup of the area.
The 300 Area at Hanford just north of Richland is shown in September 2015, a year before Washington Closure completed most of the environmental cleanup of the area. Courtesy Department of Energy

Washington Closure Hanford has reached a settlement agreement with the Department of Justice in a lawsuit involving millions of dollars worth of small-business subcontracts.

The former Hanford nuclear reservation subcontractor and the DOJ notified U.S. Judge Sal Mendoza Jr. on Thursday that a settlement had been reached and would be executed that day.

The notice did not specify the settlement amount. Other parties to the lawsuit have settled for $2.2 million.

Mendoza had ordered Washington Closure and the federal government to give him proposed hearing and trial dates to continue the case by noon Thursday.

Instead, they notified him of the settlement and asked that pending hearings and deadlines be canceled.

Mendoza agreed to cancel the Thursday hearing and ordered the parties to work out some additional issues, such as some attorney fees, and file a motion for dismissal of the case by July 23.

The case stemmed from a lawsuit filed in 2010 by Savage Logistics — a small, woman-owned business that was doing Hanford work — alleging improprieties in awarding subcontracts.

In December 2013, the Department of Justice joined Savage Logistics in filing a civil lawsuit against Washington Closure, Federal Engineers & Constructors (FE&C) and Sage Tec, accusing them of violating the False Claims Act.

Federal prosecutors accused Washington Closure of awarding subcontracts reserved for small businesses — or certain types of small businesses, such as those owned by women — to front companies.

FE&C, which was not eligible to bid on the subcontracts, did much of the work on three subcontracts at issue, the Justice Department said.

FE&C, also named in the lawsuit, settled for $2 million in summer 2017. Shortly after that Sage Tec — a small, woman-owned business — settled for $235,000.

Both companies vigorously denied allegations, but said they needed to put costly and complicated ongoing litigation behind them. Sage Tec pointed out that it has been awarded other Hanford subcontracts and successfully performed the work required.

Savage Logistics was a party to the settlement agreement and could be eligible for some of the money from the settlement.

Under the False Claims Act, a whistleblower who exposes fraud against the federal government may be eligible to receive a portion of any settlement or recovered money.

Washington Closure has not commented on the settlement announcement.

It held the DOE contract for cleanup at Hanford along the 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.

The Department of Justice criticized the practice of small businesses winning river corridor subcontractors and then relying heavily on FE&C for staff, equipment, insurance and/or quality assurance programs.

But a former procurement manager for Washington Closure said in court documents that it would be unreasonable to require small business subcontractors to meet the complex requirements of multi-million dollar nuclear remediation subcontracts on their own.

In the first subcontract at issue, Washington Closure awarded a $4 million subcontract 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 Richland-based FE&C.

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 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, after the subcontract was modified several times, Washington Closure claimed $2.8 million of the work under the modifications, according to the Department of Justice.

Washington Closure said that was a mistake caused by a computer program that defaulted to the original designation as a small-business subcontract.

The other two subcontracts at issue were awarded to Sage Tec.

Sage Tec was awarded a $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 Hanford 300 Area just north of Richland.

The Department of Justice accused Sage Tec of lacking relevant experience, equipment and employees. All it had to offer was its name and status as a woman-owned small business, federal prosecutors alleged.

Sage Tec relied heavily on FE&C to perform the work, according to court documents.

Washington Closure said in court documents that it relied in good faith on Sage Tec's self-certification as a small business and did not knowingly misrepresent its status to DOE.

The second subcontract required the small business winner to perform at least 15 percent of the work and Sage Tec said it would perform 26.8 percent of the work, according to court documents.

Washington Closure and the Department of Justice reached a tentative settlement agreement around the first of the year, but then did not finalize it.

The parties told the judge in mid April that continuing negotiations between Washington Closure and DOE on the close-out of its contract had prevented Washington Closure from signing off on the agreement.

The judge then granted another extension until this week to work out a settlement, but said it would be the last delay he would grant.

Washington Closure is owned by AECOM, Jacobs Engineering Group and Bechtel.

Annette Cary; 509-582-1533; @HanfordNews