Contractors who defrauded government free to get new business

WASHINGTON - When Saybolt Inc. pleaded guilty in 1998 to falsifying lab tests for the Environmental Protection Agency, government officials didn't mince words. The company ''betrayed the public's trust and cheated us all,'' they declared.

The judge who fined the company $4.9 million suggested it might deserve to be banned from future federal business.

''You run the risk of being investigated, prosecuted and, perhaps worse, debarred from engaging in that business,'' U.S. District Judge Mark Wolf said.

But today, Houston-based Saybolt remains eligible for contracts and continues to get some federal business - because the government chose to give the company and its new managers a second chance and not ban them.

A computer analysis by The Associated Press found that hundreds of other contractors with a history of fraud and other offenses also avoided government bans. Some had multiple run-ins with the government and still turned around and got new business.

They range from a Texas contractor convicted of selling faulty windshields to the Coast Guard to an environmental cleanup corporation found guilty of bribery.

''There is a continuing pattern of fraud and abuse in some of our largest contractors. The American people have every right to be outraged at this,'' said Sen. Tom Harkin, D-Iowa, who has tried to highlight the problem for a decade.

Vice President Al Gore wants to expand the federal debarment program to exclude businesses with troublesome labor or worker safety records. But Harkin said the program is hardly able to ban even those convicted or sue for fraud.

Saybolt, which also admitted paying a $50,000 bribe to Panama's government, says it was given another chance because it implemented state-of-the-art technology to ensure that its tests were not rigged.

''The government does set a high standard when they don't debar a company, and that is rightfully so,'' company general counsel John Denson said. ''We were fortunate as new management of Saybolt to demonstrate our commitment to those high standards.''

The AP identified 1,020 companies that were sued or prosecuted for fraud over the past five years. The businesses were identified using court records, news stories, government documents obtained under the Freedom of Information Act and inspector general reports.

A check of the 1,020 companies against a master list of contractors barred from federal business found that 737 remained eligible for future contracts.

Stewart & Stevenson Services of Houston was indicted in 1995 on charges of conspiracy, fraud and making false statements involving a contract to provide generator equipment to the Air Force. The government temporarily suspended the company, which reached a plea bargain and paid $7 million in criminal penalties and restitution.

Stewart & Stevenson got its suspension lifted by signing an ''administrative agreement'' and promising to change its business practices.

It recently ran into trouble with the government again.

After receiving a $1.4 billion contract to build 5,000 Army trucks and 1,000 trailers, the company produced trucks with faulty drive shafts that caused one vehicle to flip and another to land on its side. The Army said the trucks could not be driven above 30 mph until the problem was fixed. The company wants the Army to cover the $40 million repair bill.

Perkins Aircraft Services of Fort Worth, Texas, pleaded guilty in late 1997 to falsely representing that it repaired 14 windshields for Coast Guard rescue jets when the windshields were not airworthy. The company can still receive contracts.

Company owner Jim Perkins blamed the problem on a fired employee and said the issue of debarment ''didn't matter much to us because we don't pursue any military contracts.'' The company occasionally works as a subcontractor on the government's civilian aircraft.

Federal officials offer a variety of reasons why contractors remain eligible. Some agencies only work at it part time.

''We're not a large player in the grand scheme of things,'' said Dean Titcomb, a senior procurement analyst at the Interior Department, which bans only a few companies every three or four years.

''Usually the cases are very solid, a conviction or some particularly bad contract,'' Titcomb said.

In contrast, the Veterans Affairs Department has banned about 700 companies and aggressively audits its contractors. If fraud is detected, ''unless you are looking at the second coming of Christ, then you will get debarred,'' said Gary Krump, a VA deputy assistant secretary.

At the Pentagon, contractors often provide a unique service with no competitors, and banning them is deemed to hurt national security.

And many health care companies, such as nursing homes accused of defrauding Medicare, are not banned because officials fear their patients will be penalized.

About 24,000 companies or individuals are barred from doing business with the government for infractions that range from drug-free workplace laws to embezzlement and contract fraud. The bans can range from indefinite to just a few years. The list is maintained by the General Services Administration, and agencies are required to check it before awarding contracts and grants.

The AP review found that bad contractors can slip through with a simple name change.

Environmental Health Research and Testing in Lexington, Ky., and one member of the Sabharwal family were banned from government business after being convicted of bribing officials in 1995.

Rather than close their doors, the family drained the company's assets and returned to federal contracting under the name Environmental Chemical Corp., prosecutors allege. By the start of this year, ECC had secured about $55 million in new federal contracts.

Sabharwal family members were indicted in May on charges including abusing the Small Business Administration's minority-owned business program to get new federal contracts.

James Walsh, an attorney representing one of the Sabharwals, said the family was entitled to participate in the program, and he dismissed the charges as ''bogus.''

The review suggests the debarment program catches many smaller companies on their first offense while larger companies with more resources preserve eligibility despite multiple lawsuits and criminal charges.

Alliant Techsystems in Hopkins, Minn., was sued three times by the government in the 1990s. The company paid $12 million to settle environmental claims and $4.5 million to settle charges that managers instructed workers to charge inflated work hours on defense missile contracts.

Separately, Alliant paid $228,750 to settle allegations it overcharged the government in an $82 million tank ammunition contract.

The company has received $723.6 million in new contracts this year alone. It says two cases came with subsidiaries it purchased, and all were settled to avoid expensive litigation.

In contrast, Kenneth Hansen, an Abilene, Kan., dentist who provided care to low-income patients, was banned indefinitely from government contracting in the mid-1990s for defaulting on dental school loans. The government, which says he owes about $164,800, even sent letters to his Medicare patients.

''It makes it kind of tough to maintain a practice in a small town with that type of publicity going on,'' Hansen said.

On the Net: The government's list of banned contractors:


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