Harnett Dispatch

INTRODUCTORY STATEMENT

1. This is an action brought on behalf of the United States of America by Plaintiff Randy Rogers and Ricky Temple (hereafter “Relators”) against Defendants for treble damages and civil penalties pursuant to the Qui Tam provisions of the Federal Civil False Claims Act, 31 U.S.C.A. §§ 3729-33 (“FCA”). Pursuant to 31 U.S.C.A. § 3730(b)(2), this action is brought in camera and under seal.
2. As required by the False Claims Act (FCA), 31 U.S.C.A. § 3730(b)(2), the Relators have provided to the Government a statement of substantially all material evidence and information they possess related to the complaint and establishing the existence of Defendants’ false claims. Because the statement includes attorney-client communications and work product of Relators’ attorneys, and is submitted to the Government in their capacity as potential co-counsel in the litigation, the Relators understand this disclosure to be confidential.
3. The Relators in this case are individuals with independent, direct, unique and personal first-hand knowledge of the unlawful practices of the Defendants.
4. The Defendants have violated several laws, including without limitations, the FCA, by engaging in numerous unlawful activities in connection with contracts with the federal government to provide services to the Department of Defense and the Department of Agriculture through the present and continuing Upon information and belief, substantial revenues have come to Defendants from monies paid or provided by programs described and provided for in various contracts (including the specific contracts described and identified in this action) through which Defendants are obligated, directly or indirectly, to the United States. The Defendants’ unlawful activities are described in more detail below. In summary, these frauds include, without limitation:
   1. Falsely and materially overstating needs for capacity in federally funded projects and thus overcharging the federal government for work on those projects;
   2. Falsely representing the needs and requirements in federally funded projects well in excess of actual needs and charging the federal government for the inflated needs and requirements;
   3. Overcharging the federal government for work on projects;
   4. Charging the federal government for work on projects that was not actually done;
   5. Charging the federal government for materials not used in projects;
   6. Engaging in bid-rigging schemes on federally funded projects resulting in the federal government paying higher amounts for contracts than would have occurred if bidding was done in accordance with the law;
   7. Using buying-in schemes to circumvent public bidding laws, resulting in the federal government paying higher amounts for contracts than would have occurred if the buying-in schemes had not occurred; and
   8. In other ways knowingly presenting false or fraudulent claims for payment or approval, knowingly making and using false records and statements material to false and fraudulent claims and conspiring to commit such acts resulting in payment of federal monies as may be discovered during the investigation of this matter.

5.                             The purpose of these unlawful activities was to obtain payment from the United

States for services performed pursuant to specific contracts, notwithstanding the fact that the services were not performed in accordance with the requirements of the contracts or were performed below the standards called for by the contracts. These unlawful activities increased the corporate Defendants’ revenues from the Department of Defense and Department of Agriculture and caused improper and illegal billings to the federal government. Moreover, they have caused the United States government to enter into contracts with the corporate Defendants, and have caused the government to pay premiums and other consideration to the corporate Defendants for services they did not perform as required by their contracts, laws and regulations, all to the benefit of the Defendants. These unlawful practices are detailed in the pages below, and also in Relators’ Disclosures served on the Government.

JURISDICTION AND VENUE

1. This court has jurisdiction over Counts One through Three, which are brought under the federal FCA pursuant to 28 U.S.C.A. §§ 1331 and 1345, and 31 U.S.C.A. §§ 3730, 3732(a). Venue is proper within the meaning of 28 U.S.C.A. § 1391(b) and (c), and 31 U.S.C.A. § 3732(a).
2. Venue is appropriate as to the Defendants in that the Defendants transact business in this judicial district, and acts proscribed by 31 U.S.C.A. § 3729 have been committed by the Defendants in this judicial district.
3. To Relators’ knowledge, jurisdiction over this action is not bared by 31 U.S.C.A. § 3730(e): there is no civil suit or administrative proceeding involving the allegations of this complaint to which the United States is a party; there has been no public disclosure of these allegations or transactions; and Relators are an original source of the information upon which these allegations are based.

THE PARTIES

1. Relators are individuals residing in the State of North Carolina. They bring this Qui Tam action based upon direct and unique information obtained as a result of their employment relationship with defendant Harnett County Department of Public Utilities (hereafter “HCDPU”), with whom the corporate Defendants conduct business.
   1. Defendant McGougin & Marziano, PA (hereafter “M&M”) is a North Carolina professional corporation, which has served as a contractor providing engineering and project management services for HCDPU on contracts and projects funded by the United States Department of Defense (hereafter sometimes “USDOD”) and the United States Department of Agriculture (hereafter, sometimes, “USDOA”), agencies of the United States government.
   2. Defendant T.A. Loving Company (hereafter “TA Loving”) is a North Carolina corporation, which has served as a general contractor providing construction services for HCDPU on contracts and projects funded by the United States Department of Defense (hereafter sometimes “USDOD”) and the United States Department of Agriculture (hereafter, sometimes, “USDOA”), agencies of the United States government.
   3. Defendant HCDPU is a regional water and wastewater district, created under the applicable North Carolina law by the Harnett County Board of Commissioners.
   4. From March, 2006 until January, 2011, Relator Randy Rogers was employed by Harnett County as a right of way agent.
   5. From November, 2010 until June, 2011, Relator Ricky Temple was employed by Harnett County as a capital project manager.
   6. A significant number of the matters complained of occurred within the past 6 years.

FEDERAL LAWS

The False Claim Act

1. The Federal FCA, 31 U.S.C.A. § 3729(a)(1)(A), makes knowingly presenting or causing to be presented to the United States any false or fraudulent claim for payment, a violation of federal law for which the United States may recover three times the amount of the damages the Government sustains and a civil monetary penalty per claim.
2. The Federal FCA, 31 U.S.C.A. §, 3729(a)(1)(B), makes knowingly making,
   using, or causing to be used or made, a false record or statement to get a false or fraudulent claim
   paid or approved by the Government, a violation of federal law for which the United States may

recover three times the amount of the damages the Government sustains and a civil monetary penalty per claim.

1. The Federal FCA, 31 U.S.C.A. §, 3729(a)(1)(C), makes any person, who conspires to defraud the United States by getting a false or fraudulent claim allowed or paid, liable for three times the amount of the damages the Government sustains and a civil monetary penalty per claim.
2. The Federal FCA, 31 U.S.C.A. §, 3729(a)(1)(G), makes it illegal for any person to “knowingly” make, use or cause to be made or used a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government, a violation of federal law for which the United States may recover three times the amount of the damages the Government sustains and a civil monetary penalty per claim.
3. The Federal FCA, 31 U.S.C.A § 3729(b)(2) defines a “claim” to include any request or demand, whether under contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested.

FACTS AND ALLEGATIONS

1. Fort Bragg (United States Department of Defense)

a. On or about July 17, 2008 Fort Bragg requested Harnett County Department of Public Utilities (HCDPU) to provide it with 8 million gallons of additional water capacity.

1. HCDPU contracted with M&M to do a preliminary engineering report (PER) to assess its need, without soliciting for Preliminary Request for Qualifications (PRQ) or Preliminary Requests for Proposals (PRP) for engineering services relating to the project.
2. M&M designed a water transmission project not to just serve Fort Bragg’s water needs, but to support HCDPU’s bulk water sales and to provide water supplies to areas within Harnett County, outside of Fort Bragg.
3. Based upon M&M’s PER, bids were submitted for a 36 inch, 30 inch and 24 inch water line and related items to supply Fort Bragg the capacity set forth in M&M’s PER despite the fact that only a 24 inch line was needed.
4. M&M’s PER was approved by HCDPU with the knowledge that it was overstated and designed to provide HCDPU the ability to comply with a preexisting bulk water sales contract with Moore County, North Carolina and to service the projects of select developers within Harnett County, outside of Fort Bragg.
5. M&M then received a contract as the consulting engineer on the project, in the amount of $997,425.00, without going through the public bidding process.
6. T.A. Loving was retained to build the waterline and related facilities pursuant to M&M’s PER, without engaging in the applicable public bidding requirements of applicable state and federal laws.
7. As with other capital projects awarded to T.A. Loving by HCDPU, a substantial change order increasing the contract price was approved by M&M and paid by HCDPU.
8. Based upon the PER submitted by M&M and HCDPU’s approval, the Department of Defense paid approximately twenty million dollars ($20,000,000.00) for construction of a water line and related infrastructure to satisfy the water needs of Fort Bragg, falsely and/or fraudulently stated by M&M.
9. Had M&M’s PER accurately stated Fort Bragg’s needs, the cost to the Department of Defense would have been approximately four million dollars ($4,000,000.00), resulting in an approximately $16,000,000.00 overpayment by the Department of Defense as a result of M&M’s false and/or fraudulent misrepresentations and HCDPU’s knowing approval.
10. As indicated above, the purpose of the increased capacity set forth in the PER was to allow HCDPU to supply increased water flow and increased water pressure to various developers and land owners within Harnett County (and outside of Fort Bragg) and to fulfill a prior contractual obligation HCDPU had with Moore County for bulk water sales, all at USDOD expense.

1. In the course of building the Fort Bragg waterline and related infrastructure, M&M billed the USDOD for services not performed, including but not limited to, construction observation services, preparation of construction drawings, preparation of as-built drawings, field inspections for plan preparations, surveying services for plats and plan preparation.

m. T.A. Loving was awarded the contract by submitting a low bid and then, with the
approval and knowledge of M&M and HCDPU, submitted large change orders.

n. T.A. Loving billed for and was paid for work that did not satisfy requirements and specifications of the contract, with the knowledge and approval of M&M and HCDPU.

22.         Harnett County Public Works Center (United States Department of Defense)

1. In conjunction with the Fort Bragg water project (set forth in paragraph 21, above) documents prepared by M&M, approved by HCDPU and submitted to the federal Government falsely and/or fraudulently stated that the existing Harnett County Public Works Center would no longer be useable and a new one must be built at the cost of approximately $8 million in order to accommodate the Fort Bragg water expansion.
2. HCDPU never solicited for a Preliminary Request for Qualifications (PRQ) or Preliminary Request for Proposals (PRP) for construction manager at risk for the project.
3. Based upon the false and/or fraudulent statements that the existing Harnett County Public Works Center building could not be used, the construction of a new Harnett County Public Works Center was awarded to T.A. Loving.
4. M&M also received federal money by being retained as the site engineer for the project.
5. Despite the representations by M&M in the documents submitted to the federal Government and by the HCDPU, the existing Harnett County Public Works building was sufficient and a new one was not necessary.
6. In fact, the existing Harnett County Public Works building is still in use by Harnett County.
7. After awarding the contract for construction of the new water plant to T.A. Loving, a “change order” in the amount approximately $8.8 million dollars was submitted by M&M and approved by HCDPU, resulting in a payment of that amount to T. A. Loving by the USDOD.
8. Upon information and belief, the items requested by M&M and approved by HCDPU in the $8.8 million dollar “change order” were deliberately not disclosed to other contractors during the bidding process for the water plant upgrade to insure that the project would be awarded to T.A. Loving, to avoid competitive bidding on the additional work, amounting to “buying-in” scheme in violation of federal laws, including Code of Federal Regulations section 48.

23.    South Central Sewer Project (US Department of Agriculture)

1. On or about February 4, 2003, a $42 million bond issue was passed by the voters of the South Central Water District, Harnett County, North Carolina (SCWSD), for the expansion and construction of a sewer collection and disposal facility (wastewater treatment plant) within the boundaries of that district.
2. HCDPU then used the bonds approved by the voters in the SCWSD to secure loans and grants from the USDOA under the provisions of the Rural Development Act (Title 7, U.S. Code).
3. Approximately $26,000,000 in grants and loans were obtained from the USDOA based on intentionally false and/or misleading information in reports prepared by M&M and knowingly approved by HCDPU.
4. The scope of the expansion of the facilities was based upon a PER prepared by M&M.
5. Several phases of the expansion project were planned.
6. Estimates of the needed capacity for the project were falsely and/or fraudulently overstated by M&M and by HCDPU as will be set forth with more particularity below. M&M was awarded a contract as engineer and consultant for each phase of the project without HCDPU soliciting a Preliminary Request for Qualifications (PRQ) or Preliminary Request for Proposals (PRP) for engineering services.
7. T.A. Loving was awarded the contract for the wastewater treatment plant, funded by grants and loans from the USDA.
8. As with other capital improvement contracts awarded to T.A. Loving by HCDPU, several large change orders, in the approximate total amount of $20 million on this project, were submitted by M&M, approved by HCDPU and awarded to T.A. Loving after construction began on the first phase of the project.
9. As will be set forth more particularly below, many millions of dollars were spent outside the South Central Water District, and thus outside the scope of the money issued by the USDA for the South Central Water District. This money was used to provide sewer services to land owners and developers’ projects beyond the scope what was represented to the federal government when it issued payment.
10. The change orders, upon information and belief, were originally contemplated by M&M, T.A. Loving and HCDPU to allow a lower initial bid to be placed by M&M and T.A. Loving, thus insuring they received the contract by underbidding others, an illegal “buying-in” scheme to avoid various state and federal laws, including Code of Federal Regulations Title 48 and North Carolina General Statutes 143-128.2(a), 143-129 and 143-131.

k. Use of USDA funds outside the South Central Water District

i.In its PER, M&M, with HCDPU’s knowledge and consent, falsely and/or fraudulently overstated the sewer capacity required for the South Central Water District by at least 3 million gallons per day.

1. As a result, over fifty percent (50%) of the money approved by the voters of the South Central Water District and ultimately issued by the USDA went to fund projects outside the South Central Water District, including the funding of approximately 98.9 % of the cost of the South Regional sewer plant.
2. As a further result, select developers, outside the South Central Water District had sewer services provided to their projects by the false and/or fraudulent information supplied by M&M and HCDPU.

1. South Central Sewer Project Phase 1A

1. On or about July 13, 2007, the USDA issued funds in the approximate amount of $5,067,257.00 for the purpose of expanding the sewer capacity for the South Central Water and Sewer District Phase 1 A.
2. The funds were released on the basis of a false and/or fraudulent PER by M&M with the consent, knowledge and approval of HCDPU.
3. The PER prepared by M&M, with the knowledge, consent and approval HCDPU, contained materially false and misleading population

data and projected materially false and misleading future needs for the South Central Water District.

1. As a result of the materially false and misleading data provided by M&M, with the consent, approval and knowledge of HCDPU, a significant portion of the $5,067,257 was released by the USDA for development of projects outside the South Central Water District that benefitted select developers.

v. By obtaining the $5,067,257 from the USDA, T.A. Loving was able to place a successful bid on the first phase of the wastewater treatment plant, with assurance that $20 million in change orders would later be approved and awarded.

COUNT ONE. False and/or Fraudulent Claims, 31 U.S.C.A. 4 3729(a)(1)(A)

1. Relators restate and reallege the allegations in paragraphs 1 through 23 and incorporate them by reference.
2. This is a claim for treble damages and monetary penalties pursuant to the FCA, 31 U.S.C.A. §§ 3729 to 3733, as amended.
3. Through the above-described acts and omissions, and from at least on or before 2005 to the present, the Defendants knowingly caused to be presented for payment and approval false and/or fraudulent claims to officers of the United States Government. As a result of this illegal activity, these claims were improper pursuant to FCA, 31 U.S.C.A. §, 3729(a)(1)(A).
4. Federal Department of Defense and Department of Agriculture program officials, their contractors, carriers, intermediaries and agents, paid and approved claims for payment for such services that should not have been paid or approved.
5. The Defendants, through the means described above, deliberately and intentionally concealed the false and fraudulent nature of the claims from officials with United States Department of Defense and Department of Agriculture programs, and other Government officials, their contractors, carriers, intermediaries and agents, in order to induce payment of the false and fraudulent claims.
6. Department of Defense and Department of Agriculture program officials and their contractors, carriers, intermediaries and agents, would not have paid the claims for services or otherwise reimbursed or advanced monies to the Defendants had they known the truth.
7. By reason of the above-described presentment of false and fraudulent claims, the United States has suffered significant losses in an amount to be determined.

COUNT TWO. False Records and Statements, 31 U.S.C.A. 3729(a)(1)(B

1. Relators restate and reallege the allegations in paragraphs 1 through 30 and incorporate them by reference.
2. This is a claim for treble damages and monetary penalties pursuant to the FCA, 31 U.S.C.A. §§, 3729 to 3733, as amended.
3. Through the above-described acts and omissions, and from on or before at least 2005 to the present, the Defendants knowingly made and used, and caused to be made and used, false records and statements for the purpose of having false and fraudulent claims paid and approved by federal Department of Defense and Department of Agriculture program officials,

their contractors, carriers, intermediaries and agents. As a result of this illegal activity, these claims were improper in whole or in part, pursuant to 31 U.S.C.A. §, 3729(a)(1)(B).

1. By reason of the above-described presentment of false records and statements, the United States has suffered significant losses in an amount to be determined.

COUNT THREE. Conspiracy to Defraud , 31 U.S.C.A. 3729(a)(1)(C)

1. Relators restate and reallege the allegations in paragraphs 1 through 34 and incorporate them by reference.
2. This is a claim for treble damages and monetary penalties pursuant to the FCA, 31 U.S.C.A. §§, 3729 to 3733, as amended.
3. Through the above-described acts and omissions, and from on or before at least 2005 to the present, the Defendants, with each other and with persons known and unknown, knowingly agreed and conspired to defraud the federal and state governments by having false and fraudulent claims paid and approved by federal Department of Defense and Department of Agriculture program officials, their contractors, carriers, intermediaries and agents. As a result of this illegal activity, these claims were improper pursuant to 31 U.S.C.A. § 3729(a)(1)(C).
4. By reason of the above-described unlawful conspiracy, the United States has suffered significant losses in an amount to be determined.

PRAYER FOR RELIEF

WHEREFORE, Relators, acting on behalf of and in the name of the United States of America, and on their own behalf, demand and pray that judgment be entered as follows against the Defendants as follows:

1. In favor of the United States against the Defendants for treble the amount of damages to United States Department of Defense and United States Department of Agriculture programs from the illegal activities alleged herein, plus the maximum civil penalties allowable for each false claim;
2. In favor of the United States against the Defendants for disgorgement of the profits earned by Defendants as a result of their illegal schemes;
3. In favor of the Relators for the maximum amount allowed pursuant to 31 U.S.C.A. § 3730(d), to include reasonable expenses, attorney’s fees and costs incurred by Relators;
4. For all costs of the federal FCA civil action; and
5. In favor of the Relators and the United States for such other and further relief as the this court deems to be just and equitable;

PLAINTIFF-RELATORS DEMAND A TRIAL BY JURY ON ALL COUNTS

This, the W^kilay of November, 2011.

KNOTT, BERGER & MILLER, L.L.P.