Roofer may have bilked state, local governments

Ohio company paid out $61M to settle federal lawsuit

Ohio’s state and local governments have spent more than $17 million since 2010 under state contracts with a roofing company that charged prices the federal government has alleged are inflated, a Dayton Daily News investigation has found.

The money — including $5.1 million last year — was spent on no-bid contracts with Tremco, a Cleveland area roofing company. The no-bid contracts were allowed because the state adopted a carbon copy of a federal General Services Administration contract that guaranteed low prices.

Just how much was overpaid in Ohio is not known. But in Miami County alone, a sheriff’s office lieutenant in 2012 called for further investigation into Tremco’s pricing, saying county taxpayers overpaid by hundreds of thousands of dollars on government roofing contracts.

In 2010, a Tremco whistleblower led the feds, 13 other states and one city to sue the company, which agreed to pay $61 million in August of last year to settle the federal portion of the lawsuit. According to the suit, which is still pending for the other plaintiffs, the company installed defective roofs, gave larger discounts to private customers than government customers and re-labeled generic material as high-end at a marked-up price.

The allegations were brought to federal investigators in February 2010, according to the lawsuit, which was filed in July 2010 but unsealed in August 2013. Although Ohio adopted the same prices in 2010 that were under dispute in the federal lawsuit, state officials say they knew nothing of the allegations until last year.

Ohio’s contract remains in effect until March.

Ohio doesn’t have a false claims law, the tool used by the federal government and the other states to pursue the whistleblower claim against Tremco. Although some lawmakers have pushed for adopting the legislation in Ohio, and it has been strongly supported by Attorney General Mike DeWine in the past, business groups have opposed it on grounds it encourages frivolous lawsuits.

“We don’t want to pay more than market on anything,” said state Sen. Bill Coley, R-Liberty Twp., when told about the newspaper’s findings. He said the State Government Oversight and Reform Committee he sits on will look into the issue and see if legislation is warranted.

Tremco officials released a statement admitting there was a problem, and that it has been fixed and they are working to reimburse any governments that were overcharged.

“Federal agencies purchasing under the GSA contracts did not always receive the pricing required under the GSA contracts due to inadequate administrative and compliance systems in place at the time,” the statement says. “Tremco has also enhanced its administrative procedures and compliance systems, all of which are designed to ensure ongoing compliance.”

Company VP was whistleblower

The GSA contracts were supposed to save taxpayers money.

The GSA researches companies to make sure their government pricing is comparable to what they charge their commercial customers. If it is, the companies are put on a list that is shared with other federal agencies, which can then shop using the agreed-upon prices. That saves those agencies the cost and labor of having to bid out every purchase. The state of Ohio creates a similar list for state and local governments, and sometimes adopts the federal contract prices to save itself the cost of the research.

But Tremco’s government prices were higher than its commercial prices, according to the Tremco vice president who brought his whistleblower claims to the federal government.

Gregory Randolph worked for Tremco for 20 years before he resigned in 2009. In February 2010 — three months before Ohio adopted the federal contract, and a month before the company submitted its prices to the state — Randolph reported his allegations to the GSA Office of Inspector General.

The lawsuit says the company offered the federal government a 13.3 percent discount on all of its prices. But it didn’t tell the government that company salespeople had authority without authorization from management to provide customers discounts of up to 30 percent of their posted price. In fact, the company routinely offered discounts up to 40 percent to private buyers.

“Because of broad discretion and flexibility given to Tremco sales personnel to discount prices, Tremco’s purported ‘price list,’ upon which it based its GSA pricing, did not represent Tremco’s actual pricing structure for its customers,” the lawsuit alleged.

Furthermore, the lawsuit says Tremco executives knew of the pricing discrepancy and worried in private about being caught.

The suit also alleges that Tremco hawked “expensive brand-name, top-of-the-line roofing systems and products to the federal, state and local government purchasers, rather than providing its government customers with identical lower-cost alternatives, which lack only the fancy names and labels.”

It lists nine products sold to the government that also have generic equivalents that are identical in every way other than label and price. The generic products were often half the price, the suit says.

The suit also says Tremco over-sold government purchasers, telling them they needed products that met specifications only Tremco could meet.

Finally, the suit says Tremco knowingly installed thousands of defective roofs on government offices such as post offices, defense instillations, schools, hospitals and municipal buildings across the country.

State seeking remedy

Ohio DAS officials told the Daily News they learned of the pricing problem in April 2013.

“DAS is aware of the pricing issues this vendor had with its GSA contract and correspondingly with our state term schedule. We have been and continue to work with this company on resolution of those issues,” says a written response to the newspaper’s questions from Ohio DAS, which administers the state contract.

Tremco’s statement says the company “proactively reached out to the Ohio Department of Administrative Services to initiate a process to ensure that we reimburse users of the State Term contract for any instances that resulted in a state or local entity not receiving full discounts on their purchases under the State Term contract.”

Those discussions are ongoing, according to state officials.

DAS officials said they know how much local and state governments spent under the contract — more than $23.4 million since 2006 — but not exactly which local governments hired Tremco.

Tremco is based in Beachwood, Ohio, and employs more than 2,000 people, according to its website. It is a subsidiary of the Medina, Ohio-based multinational RPM International.

False claims act

The $61 million settlement only quells the federal portion of the suit, not the separate actions brought by the 14 states and one city that each sued under their own false claims laws.

Such laws encourage whistleblowers by giving them a cut of the penalty — $10.9 million in this case — and allow the states to seek triple the damages.

Business groups have successfully blocked false claims legislation in Ohio, saying it encourages frivolous lawsuits by awarding the whistleblower up to 30 percent of a settlement.

DeWine said last week his office first heard about the Tremco issue in August. He said current law allows his office to sue for breach of contract, but it could not seek the level of damages it could under a false claims law.

The federal government recovered $3.8 billion last year in false claims act settlements, the second highest in history. This brought the total recoveries under the law since January 2009 to $17 billion

“We thank this whistleblower for coming forward to reveal this wrongdoing,” said Ronald C. Machen Jr., U.S. Attorney for the District of Columbia, where the Tremco suit was settled. “Other contractors who are considering bilking the government should take heed: false and fraudulent claims on the U.S. Treasury will not be tolerated.”

Issue raised in 2012

Tremco’s prices caused a stir in Miami County in 2012. Miami County Sheriff’s Office Lt. Steve Lord sent a report to the state auditor, attorney general and others asking state officials to investigate whether county taxpayers overpaid Tremco by hundreds of thousands of dollars on roofing contracts.

“(The state contract) was supposed to be in place to save money but was actually costing taxpayers more, in some cases substantially more,” Lord said in an interview last week.

Lord examined the contracts as part of a fraud and corruption investigation that resulted in theft in office charges against the county maintenance director. The investigation found no wrongdoing by Tremco, but questioned the amount of money county officials spent with the company. The sheriff’s office found the county often sought an informal quote from a local roofing company, then gave the work to Tremco at a higher cost using no-bid contracts, including state contracts.

In total, the local company’s bids may have been as much as $500,000 less than those offered by Tremco, the investigation found, though county officials disputed that figure, saying Tremco’s bid was more comprehensive.

Don Hubbard, owner of the local roofing company in Piqua that provided the discarded bids, isn’t convinced.

“I was flabbergasted like everybody else when they spent that kind of money for roofs,” Hubbard said. “It wasn’t as much for me about getting the jobs, it was the money they spent, as a taxpayer.”

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