The timing was perfect – for a teaching moment. For the convicted CEO, or the company that he led, it was not.
On the day that the Supply Chain Management and Compliance class that I teach was discussing socioeconomic program compliance issues, a Manhattan jury convicted the chief executive officer of DCM Erectors, Inc. (DCM), and DCM itself, of engaging in a fraudulent scheme to violate the Port Authority’s Minority and Women-Owned Business Enterprise Program, which is designed to increase the role of minority and women-owned businesses working on its projects. After an eight-day jury trial before US District Judge Loretta A. Preska on a case involving work on the new World Trade Center “Freedom Tower” skyscraper and associated transportation hub, DCM and its CEO, Larry Davis, were convicted of charges that included a cover-up involving false purchase orders, payrolls, and other records.
We discussed this conviction in the class because it serves as a cautionary tale that socioeconomic programs seek to facilitate social policies through contract requirements and that false or fraudulent statements with respect to those requirements can have very severe consequences.
State governments as well as the federal government and other public authorities use contract awards to gain commitments from their contractors on a wide range of socioeconomic obligations. Furthering social policy through contracting is not new and such contract commitments must be met. A good statement on the importance of these programs comes from the Defense Acquisition University:
Socioeconomic programs are incorporated into the procurement process to foster the achievement of national goals. The Government utilizes its purchasing power as a means of promoting public policies. Government contracts attempt to further such national goals as fostering small business, overcoming regional unemployment, assisting minority workers, giving preference to domestic and other special sources, ensuring fair treatment of employees, maintaining integrity and fair competitive practices, and protecting the environment.
Manhattan US Attorney Preet Bharara in a press release said “As the jury found in its guilty verdict today, Larry Davis, the CEO of DCM Erectors, used fraud in connection with nearly a billion dollars of construction contracts on One World Trade Center. The construction work awarded to Davis came with the obligation to employ minority and women-owned businesses, an obligation that Davis shirked and then lied about. We cannot allow major public projects – particularly ones on the sacred World Trade Center site – to be built on a foundation of fraud. By its verdict today, the jury of New Yorkers made clear that it will not.”