Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Nonprofits with ties to SourceAmerica’s board of directors alleged to have influenced award of AbilityOne government contracts, (Apr 2, 2014)

By Linda O’Brien, J.D., LL.M.

Nonprofit companies that participate in the AbilityOne government procurement program allegedly engaged in a conspiracy to restrain trade by using their ties to the administrator of the program to influence the award of government contracts, according to a complaint filed in the federal district court in San Diego (Bona Fide Conglomerate, Inc. v. SourceAmerica, April 1, 2014).

The AbilityOne program is a government procurement system on which nonprofit service providers and producers of goods substantially employing either blind or severely disabled persons (affiliates) can list their pre-approved products and services for purchase by the federal government. The AbilityOne Commission administers the program through two Central Nonprofit Agencies (CNAs)—National Industries for the Blind (NIB), and SourceAmerica. In turn, the CNAs match government contracts with local nonprofit agencies. Bona Fide Conglomerate provides janitorial and grounds maintenance services to the federal government and is an affiliate in the AbilityOne program.

The complaint states that the board of directors of SourceAmerica is comprised almost entirely of executives and directors of AbilityOne affiliates that compete for contracts in the AbilityOne program. Although the officers of SourceAmerica decide which affiliate will be awarded a given contract, the directors have great influence over the officers as the board of directors appoints the officers and determines executive compensation. SourceAmerica, through the influence of certain affiliates, has utilized various schemes to hinder competition in the AbilityOne program and ensure that they are awarded contracts over others. The companies associated with the directors are awarded contracts irrespective of the merits of their proposals or their past performance ratings.

In 2012, Bona Fide challenged a contract award made to another affiliate pursuant to SourceAmerica’s recommendation on the grounds that the award was arbitrary and capricious. The suit was resolved by a settlement agreement in which SourceAmerica agreed to treat Bona Fide objectively and fairly in the contract allocation process. Bona Fide has not been awarded a single new contract since the settlement agreement was entered into.

The complaint alleges that companies have taken advantage of the position of their leaders on SourceAmerica’s board to participate in anticompetitive cartel activity. The companies have engaged in conduct that has damaged Bona Fide by ensuring that SourceAmerica would not award contracts to Bona Fide for which it was competing. The companies, through their officials as directors on SourceAmerica’ board, conspired to rig the procurement process through unannounced subjective criteria and post hoc evaluations to ensure that their companies would be awarded contracts despite being a less worthy contender.

In May 2013, the Government Accountability Office (GAO) released a report to the House of Representatives Committee on Oversight and Government Reform, recommending that enhanced oversight of the AbilityOne program was needed. SourceAmerica officials admitted to the GAO that SourceAmerica directors have been involved in daily operations, including choosing which affiliate would be assigned a contract opportunity. The practice continues despite SourceAmerica’s representations to the GAO that the practice has stopped, according to the complaint.

Bona Fide asserts claims for breach of contract and violations of Section 1 of the Sherman Act. The action seeks treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 3:14-cv-00751-GPC-DHB.

Attorneys: John H. L’Estrange, Jr. (Wright & L’Estrange) and Mark J. Blando (Eckland & Blando LLP) for Bona Fide Conglomerate, Inc.

Companies: SourceAmerica; PRIDE Industries, Inc.; Kent, Campa & Kate, Inc.; ServiceSource, Inc.; Job Options, Inc.; Goodwill Industries of Southern California; Lakeview Center, Inc.; The Ginn Group, Inc.; Corporate Source, Inc.; CW Resources; National Council of SourceAmerica Employers; Opportunity Village, Inc.

News: Antitrust CaliforniaNews