2 companies penalized in sham minority contract scheme, another will pay city

Check out the press release below from the Mayor's office:

Thursday, January 12, 2012                                                 FOR IMMEDIATE RELEASE


Philadelphia, January 12, 2012–   In the wake of a Philadelphia Office of the Inspector General investigation into a sham minority contracting scheme, the City of Philadelphia has begun debarment proceedings against one contractor, removed a second from its list of certified minority businesses and reached a no-fault settlement with a third contractor, which has agreed to pay the City $100,000.  

In a case summary released today by Philadelphia Inspector General Amy Kurland, the OIG established that William Betz Jr. Inc., JHS and Sons Supply Company and UGI HVAC Inc. colluded to make it appear that JHS, a City-certified minority vendor, had provided equipment and supplies for a government-funded weatherization project when JHS was paid only for the use of its name and minority certification.

The vendors falsely represented their compliance with anti-discrimination and economic-opportunity policies designed to help disadvantaged businesses compete for City contracts, Kurland said.

When apprised of the OIG's findings, the Office of Economic Opportunity removed JHS from its list of certified minority vendors and the Law and Procurement departments began debarment proceedings against Betz. The OIG and the Law Department finalized the no-fault settlement agreement with UGI earlier today.

“This city is committed to doing business fairly and transparently,” Kurland said. “Companies that flout the rules need not apply.”

Angela Dowd-Burton, executive director of the City’s Office of Economic Development, echoed Kurland’s sentiments and emphasized the important role that minority- and women-owned businesses play in creating jobs, spreading prosperity and spurring entrepreneurship in Philadelphia.

“The goal of this Administration is to have minority-owned businesses provide a commercially acceptable function and to be compensated accordingly,” said Dowd-Burton. “We cannot afford the displacement of legitimate minority contractors with business owners who are willing to sell their good name, nor can we tolerate contractors that create schemes to circumvent our inclusion strategy.”

In June 2010, UGI signed a $1 million contract with the Philadelphia Housing Development Corporation to make houses more energy-efficient for low-income residents of Philadelphia.

UGI pledged to hire a subcontractor certified by the City as a Minority, Women or Disadvantaged Business Entity and later informed the City that JHS would provide boilers, hot-air furnaces and chimney liners for the weatherization project. However, investigators discovered that UGI had purchased those products from Betz, who paid JHS 3 percent of the contract proceeds from UGI to pretend JHS was the supplier.

Rudy Betz, president of William Betz Jr., brokered the deal among the three companies, Kurland said.

Investigators also found that UGI and Betz had generated false invoices to cover their tracks and that Betz had used JHS as a sham minority contractor on at least 14 other city contracts.

If debarred, William Betz Jr. Inc. would be banned from conducting business with the city for up to three years, the maximum penalty.

The City has not initiated debarment proceedings against a company since 2007, but Kurland said the sanction was warranted in this case because Betz completely disregarded the interests of the City and of legitimate minority businesses.

“Debarment is rare for a reason,” Kurland said. “The city saves it for the most egregious breaches of contract.”

The Office of Economic Opportunity and the Office of Housing and Community Development provided invaluable assistance in the investigation, Kurland said.

In particular, Kurland and Dowd-Burton commended the efforts of the Office of Housing and Community Development’s compliance unit, which first identified evidence of the scheme and referred the matter to the OIG.

As part of its settlement agreement with the City, UGI has promised to raise minority-owned business participation to 50 percent on a future weatherization contract with PHDC. UGI has also created new policies and procedures to ensure that its employees comply with the City’s anti-discrimination and economic-opportunity policies.