HD Supply Waterworks to Pay $5M to Resolve Grant Fraud Allegations - Modern Distribution Management

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HD Supply Waterworks to Pay $5M to Resolve Grant Fraud Allegations

Company participated in scheme to take advantage of Disadvantaged Business Enterprise program.

HD Supply Waterworks, St. Louis, MO, a division of HD Supply Holdings Inc. (NASDAQ: HDS), Atlanta, GA, has agreed to pay the U.S. government $5 million under the False Claims Act to resolve allegations that it participated in a scheme designed to take advantage of the Disadvantaged Business Enterprise program in order to obtain subcontracts on federally funded projects, U.S. Attorney Richard S. Hartunian announced.

In 2008, authorities began investigating prime contractors that claimed to have conducted business with the now-defunct American Indian Builders & Suppliers Inc., a Native American-owned company certified as a DBE in New York and in other states. The investigation revealed that several prime contractors listed AIB as a subcontractor that had worked on or supplied materials for federally funded projects when it did neither. Instead, a third party that would not itself qualify as a DBE performed the work or supplied the materials, and received much of the financial benefit. For its role, AIB would collect a small percentage of the subcontract amount as compensation for the fraudulent use of its name and DBE status.

The government alleges that Waterworks enabled several prime contractors to represent falsely that AIB had performed a commercially useful function on federally funded contracts by negotiating price and other terms of sale when, in reality, the prime contractors had negotiated such terms with Waterworks and used AIB as a pass through. Waterworks acknowledged in the settlement agreement that AIB served as a pass-through by collecting invoices from Waterworks, transferring the information from those invoices to AIB’s own invoices, adding a markup, and passing the AIB marked-up invoices on to the prime contractors.

“Waterworks enabled prime contractors to certify falsely that American Indian Builders & Suppliers served as a subcontractor on government-funded projects, thwarting the program’s objective of creating a level playing field for legitimate minority and women-owned businesses to compete fairly on such projects," Hartunian said. "As this case demonstrates, my office will vigorously pursue unscrupulous contractors who engage in schemes to divert grant funds away from those for whom the money was intended.”

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