Published in Manufacturing

Kalamazoo manufacturer to pay $400,000 settlement for alleged procurement fraud

BY Tuesday, January 08, 2019 01:59pm

KALAMAZOO — A Southwest Michigan box manufacturer has agreed to pay $400,000 after it faced allegations of misconduct in connection to a multi-state subcontract with the federal government.

According to U.S. Attorney David Freed, Kalamazoo-based Arvco Container Corp. violated subcontract limitations imposed by federal regulations and the terms of a contract to provide corrugated boxes to the government from Aug. 3, 2010 through Aug. 3, 2014.

The federal Defense Logistics Agency contract — a set-aside for eligible small businesses in a program administered by the U.S. Small Business Administration — was awarded to Reading, Pa.-based Fibre Technologies LLC, which then subcontracted to Arvco.

In a statement to MiBiz, Arvco’s lawyer, Randall Levine of Kalamazoo-based Levine & Levine, said the initial investigation targeted Fibre Technologies “who had acted as a general contractor.”

According to the contract requirements, Fibre was obligated to manufacture at least 50 percent of the boxes. However, during the investigation, the government found that Arvco allegedly contributed 100 percent of the boxes.

The U.S. Attorney’s Office for the Middle District of Pennsylvania, the SBA Office of Inspector General, and the Defense Criminal Investigative Service investigated the case involving the contract.

“Limitations on subtracting [sic] ensure that otherwise ineligible businesses don’t use small or disadvantaged businesses merely as vehicles to access set-aside contracts,” Inspector General Hannibal Ware said in a statement.

Through a False Claims Act settlement agreement, Arvco has agreed to pay a civil penalty of $153,318 in addition to returning the $246,682 in gross profits from the deal.

According to Levine, the settlement is part of a larger effort to rectify the situation and ensure that it doesn’t happen again in the future.

“Arvco recognizes that it made mistakes in fulfilling its obligation to the government as a subcontractor,” Levine said, adding that “the claims resolved by the settlement are allegations only, and there has been no determination of liability.”

The agreement includes a clause stating that, by virtue of opting to settle the matter, Arvco is not liable or admitting misconduct. The clause, found in every False Claims Act settlement agreement, is meant to protect the defendant from any collateral damage that might follow an admission of fault.

According to the U.S. Attorney’s statement, government officials have promised to “aggressively investigate” violations of subcontracting limitations to protect the integrity of contracting programs that are set aside for specific initiatives and “deter other contractors from this behavior in the future.”

The Arvco settlement was announced two days prior to the recent federal government shutdown.

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