Florida contractor, HX5, LLC, and its CEO Margarita Howard, have agreed to settle a Small Business Administration (SBA) set-aside contract fraud case. According to the DOJ, HX5 and Ms. Howard will pay $7.76 million to settle a False Claims Act (FCA) case filed in the U.S. District Court for the Northern District of Florida. The case alleged HX5 and Ms. Howard committed procurement fraud in connection with the SBA 8(a) Business Development program.
What Is A Set-Aside Contract?
A set-aside contract is a type of government contract for which performance is limited to certain types of companies. Set-aside contracts help provide a level playing field for small businesses so they may compete for and win federal contracts.
Types of Small Business Administration Set-Aside Contracts
While some contracts are “set-aside” for any small business meeting the SBA size criteria, some contracts are set-aside exclusively for small businesses in certain socio-economic categories. In order to compete for an SBA set-aside contract, businesses meeting the eligibility requirements, must first register on the System for Award Management (SAM.gov).
General Small Business Set-Asides
The SBA automatically sets aside all federal contracts under $150,000, with few exceptions, for small businesses meeting the SBA size criteria.
SBA 8(a) Business Development
The federal government strives to award at least 5% of all federal contracting dollars annually to small disadvantaged businesses. To qualify for the SBA 8(a) program, a business must:
- not have previously participated in the 8(a) program;
- be at least 51% owned and controlled by U.S. citizens who are socially and economically disadvantaged;
- have a personal net worth of $850 thousand or less, adjusted gross income of $400 thousand or less, and assets totaling $6.5 million or less; and
- Demonstrate the potential for success such as having been in business for two years.
HUBZone
The federal government strives to award at least 3% of federal contracting dollars to HUBZone-certified companies each year. To qualify for the HUBZone program, a business must:
- be at least 51% owned and controlled by U.S. citizens, a Community Development Corporation, an agricultural cooperative, an Alaska Native corporation, a Native Hawaiian organization, or an Indian tribe;
- Have its principal office located in a HUBZone; and
- Have at least 35% of its employees living in a HUBZone.
Women-Owned Small Business
The federal government’s goal is to award at least 5% of all federal contracting dollars annually to women-owned small businesses (WOSB). To be eligible for the WOSB program, a business must:
- be at least 51% owned and controlled by women who are U.S. citizens and
- have women manage day-to-day operations and make long-term decisions.
Veteran-Owned Small Business
The federal government aims to award at least 3% of all annual federal contracting dollars to Veteran-Owned Small Businesses (VOSB) each year. To qualify for the VOSB program, a business must meet the small business size criteria, register on VetCert, and have at least 51% veteran ownership.
Contractor Did Not Qualify As A Disadvantaged Small Business
According to the DOJ, HX5 LLC, based in Fort Walton Beach, Florida, did not qualify as a disadvantaged small business. The FCA alleged HX5, and its CEO Margaret Howard, comitted SBA set-aside contract fraud by deliberately withholding and misrepresenting key financial information, including assets, net worth, income, and sources of capital, to fraudulently obtain contracts meant for genuinely disadvantaged businesses. This deceit allowed HX5 to secure six 8(a) contracts during the period Jan. 1, 2015, to Dec. 31, 2021. including the Glenn Engineering and Research Support (GEARS) contract awarded by NASA, with a potential value of around $348.8 million. By providing inaccurate information, HX5 and Ms. Howard prevented deserving small businesses from accessing the opportunities that Congress had intended for them.
To resolve the allegations in the FCA case, HX5 and Ms. Howard will pay the United States $7,759,693.92. Of the settlement amount, the whistleblower, Vantage Systems, Inc. will receive $1,357,964.00 as its relator share.
We Help Whistleblowers Expose Procurement Fraud
The Whistleblower Law Collaborative LLC, based in Boston, devotes its practice entirely to representing clients nationwide in bringing actions under the federal and state False Claims Acts and other whistleblower programs. The firm’s many successes include a recent settlement with Zoll Medical for violations of the Trade Agreements Act (TAA). TAA violations are just one type of government procurement or defense contractor fraud. Our firm also represented whistleblowers in successful cases involving the enormous “Big Dig” reconstruction project in downtown Boston. If you have knowledge of government program fraud, contact us for a confidential consultation.
