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New Legislation Targets Minority Contracting Fraud

Author: Ronald E. Lyons Date: 11/13/2009

Categories: Corporate and Business Law

Under a new Maryland law that went into effect last month, contractors that rely upon minority-owned companies in bids for the award of state construction projects but which fail to use such companies will be subject to felony charges. The new law, which went into effect as of October 1, 2009, provides for a maximum sentence of five years in prison, a $20,000 fine, or both.

Historically, this type of abuse occurred when a contractor included a minority-owned company in its bid without the company’s consent or paid a minority-owned company solely for the right to use its name in a bid. Currently, Maryland requires that 25% of state contracting dollars be set aside for minority- and female-owned business. The challenge for many general contractors comes from the tight time constraints in which they need to submit their bids that may effectively preclude them from having an adequate opportunity to investigate or assess the various subcontractors that are seeking to be included in the bid.

The Maryland General Assembly also enacted other statutes relating to minority set-asides that include the following:

  • It is now a felony to commit fraud when applying for minority certification.
  • State agencies must try to avoid bundling multiple contracts into a single bid if the contracts could be broken up and awarded singularly to qualified minority-owned businesses.
  • Businesses that are owned by women who are also minorities can obtain minority certification in both categories.
  • Business owners with a personal net worth exceeding $1.5 million dollars are no longer eligible for minority certification. The dollar cap will be adjusted annually to account for inflation.

If you have any questions or wish to discuss this matter further, please feel free to contact me at (301) 251-1180 or by email.