# Interesting article about subcontracting on a governemnt project



## John Paul Sanborn (Sep 22, 2009)

A Journal Sentinel Watchdog Report
Business unpaid after job for Army
Felon was contact for McCoy project

By Cary Spivak of the Journal Sentinel

Posted: Sept. 19, 2009

An Idaho company whose chief contact with the U.S. Army was a felon on probation snagged a multiyear, six-figure contract for work at Fort McCoy in Wisconsin last summer - and then failed to pay the Oconomowoc company it hired to do the job.

The Idaho company, MLDC Inc., continues to get federal contracts and has collected millions of dollars from government work. White Oak Farm LLC of Oconomowoc, meanwhile, has so far received just $25 of the $116,000 it says it is owed for work it did as a subcontractor for MLDC at Fort McCoy.

White Oak, a small, family-owned company, says it spent $89,000 to do the job, using a $500,000-plus machine to pulverize trees, branches and other debris left over from military drills on the mammoth Army base near Tomah.

The Army's response to White Oak: Too bad.

"I mean, you know, we certainly feel for White Oak, but they have to deal with MLDC," said Gale Smith, public affairs specialist for the Army Contracting Command.

The situation reveals some of the traps awaiting subcontractors who take federal jobs thinking they are protected by the good faith of Uncle Sam:

• The Army does not require criminal background checks of key employees for most of its contractors.

•  Officials at Fort McCoy say the Defense Department's online system for tracking problems with contractors was inaccessible to them for several years and did not become available again until late last year. The system is supposed to provide purchasing officials with a red flag when a problem with a contractor surfaces.

•  While contractors working on construction jobs must take out payment bonds guaranteeing their subcontractors will be paid, no such guarantee is extended to service contractors such as White Oak.

"Just because a contractor is working on a federal project doesn't necessarily mean that they are a good contractor," said David Mendes of the American Subcontractors Association, a national trade group.

Mendes said federal requirements regarding payments to subcontractors are considered "the gold standard," but those protections apply only to construction jobs and a handful of other contracts, such as demolition work. Service jobs, such as the one performed by White Oak, don't receive the same protections.

Even a top Fort McCoy purchasing official warns that subcontractors can't count on the Army to check out the backgrounds of people in the firms it hires.

Reid Lerum, director of contracting for Fort McCoy, suggested that White Oak's owner, James "Sandy" Syburg, dropped the ball by not doing a more complete investigation of MLDC on his own. Told that Syburg assumed the Army took care of that, Lerum responded, "For someone who's been in business a long time, that is pretty naïve."
Got partial payment

MLDC collected $38,962 for the Fort McCoy job, and the man who served as its contact for the job, Matt Ruck, does not dispute that Syburg's company is owed big money. Ruck, however, blames the Army.

Ruck was one of the founders of MLDC, a general contractor, and had been its president. He said he gave up his executive title and ownership interest in 2006 after being convicted in Idaho of forgery and fraud.

"As far as I know (White Oak Farm) has not been paid anything on the contract other than a $25 initial transfer," Ruck said in an interview.

Syburg's contract with MLDC called for an initial payment of $25,000, but instead - after repeated calls and e-mails to Ruck - his firm received the $25.

The situation has put his company at risk, Syburg said.

"That money represents the lion's share of what our gross profits would be for a year," he said. "It puts us in a precarious business environment because of the financial stress it has put on us."

To Syburg, who with his wife has owned White Oak for about 15 years, chasing down substantial money owed to him is a new experience.

"By nature, we say what we're going to do, and we do what we say," Syburg said. "Somewhat naïvely, I assumed everyone operated the same way."

MLDC has received nearly $6.3 million in federal contracts since 2006, including more than a dozen this fiscal year, according to USAspending.gov, a government Web site.

Syburg said he checked credit references for MLDC, not realizing that was about the extent of the Army's background check as well.

"My assumption was the due diligence was done by the government," Syburg said, adding that he feels the Army was "clearly negligent" when it checked the background of the company.

The Army does not check criminal backgrounds of key employees of a company receiving a federal contract, Lerum said. Jeanette Lau, public affairs officer for the Army Contracting Command, said in an e-mail that federal law requires those checks only if a contract involves child care.

So the Army did not know when it awarded the contract that Ruck, its main contact at MLDC for the deal, was still on probation as part of his seven-year sentence for forgery and three-year sentence for fraud.

Lerum - who was not involved in awarding the contract - said he first learned of Ruck's convictions during an August interview with a Journal Sentinel reporter.
Is he complying?

Both Ruck and Greg Rauch, an attorney representing Ruck and MLDC, argue a criminal past shouldn't exclude someone's employer from getting a government contract.

"People serve their time and do their punishment, comply 1,000% with every term - do we want people to segregate them?" Rauch asked. "Do we want people to put these guys into certain camps and put letters on their shirt to identify them?"

Ruck's probation, which expires in 2013, also bans him from being self-employed.

William Thompson, prosecuting attorney in Latah County, Idaho, said the employment restriction was imposed because Ruck used his company in some of his criminal activity. Thompson questions whether Ruck is abiding with that condition of probation.

"I have not been given anything that satisfies me that he has completely gotten out of the self-employment business," said Thompson, who prosecuted Ruck.

Ruck has been listed as MLDC's contact person on federal lists of contractors, and USAspending.gov repeatedly lists his cell phone number as the "vendor phone number" for contracts awarded this year.

The contracts with White Oak and a California company that sued MLDC and Ruck for nonpayment were signed by Ruck. Both contracts list the mailing address for MLDC as Moscow, Idaho, the small town where Ruck lives.

Fort McCoy officials said Ruck was their contact. MLDC was incorporated in Nevada and lists Donald D. Merritt as president, secretary, treasurer and director.

During a 90-minute phone interview, Ruck downplayed his role with the company, saying repeatedly that he has a minimal role in its activities and no ownership in it.

Ruck said he helped launch the company in about 2001 and held an ownership interest until he was sentenced. But today, he said, he is merely the contract administrator, a post he described as largely behind the scenes.

"What I do is make sure that the paperwork is accurate, make sure that insurance . . . is lined up; sometimes I do estimating," Ruck said. "As far as (being the) face of the company, no, absolutely not."

Rauch said he tried to reach MLDC officials to see if they would be interviewed for this story, but they did not return his messages. The attorney said his clients are often hard to reach. "I've not been able to get hold of a contact person or any shareholders," Rauch said.
Another claim

White Oak is not the only Wisconsin subcontractor to claim it was wronged by MLDC on a government job.

Wieser Concrete Products of Maiden Rock sued MLDC over a September 2007 contract under which Wieser delivered precast concrete bunkers to Fort McCoy. On July 30, 2008 - which happened to be the day before White Oak finished its Fort McCoy work - a Pierce County court issued a default judgment against MLDC in the Wieser case for $219,000.

Wieser President Andrew Wieser declined to comment except to say that the matter has been resolved.

Separately, a judgment for $235,240 was issued against MLDC and Ruck this year by a state court in Riverside County, Calif. In that case, Turnkey Developers Inc. had charged that it was owed more than $200,000 for grinding work it had done at a southern California Marine base as a subcontractor for MLDC.

Like Syburg, Turnkey company officials were frustrated because they received no help from the military in collecting their debt and watched as MLDC snagged other federal government contracts.

"Even after telling the government we haven't gotten paid . . . they were still doing business with him, which was mind-boggling," said Jennifer Dumas, assistant manager of the southern California company.

Dumas said Ruck hired her company as a subcontractor, and court records show he signed the contract with the firm.


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## John Paul Sanborn (Sep 22, 2009)

*Part II*

Ruck and Rauch both said they were unaware of the California lawsuit. Rauch downplayed the number of legal actions against MLDC and Ruck, saying that many companies get sued and that the number of judgments against his client was modest.
Feingold inquires

Last fall, Syburg asked Sen. Russ Feingold (D-Wis.) for help. Feingold contacted the Army and soon learned about Wieser's similar problems with MLDC.

"This (White Oak) contract had similar payment issues that were raised by Wieser Concrete . . . which also led to a Congressional inquiry from your office," Michael Gallagher of the Army Mission and Installation Contracting Command wrote in a May response to Feingold.

Despite the troubles, MLDC had no black marks on key government contractor databases, Gallagher wrote. He said he would add a report to one of the databases.

Even if reports about MLDC had been filed before last summer, the information would not likely have been seen by Fort McCoy. The system it would have checked was "unavailable for several years" and did not come back online until late last year, Lau said in her e-mail. The Defense Department says the system was not down, and Lau could not explain Friday why Fort McCoy did not have access.

Instead of using the online system, the Army checked three MLDC references and was satisfied with the comments.

"You can't speculate on when a company is going to stop performing," Fort McCoy's Lerum said. "We do the best we can."

The Army says it won't exercise the four option years remaining on its contract with MLDC.
Blame the Army

In interviews this month, Rauch and Ruck blamed the Army, and to a lesser extent White Oak, for the dispute.

They say they can't pay White Oak the six-figure sum it's due unless the Army pays MLDC. But the Army won't pay that amount because it disagrees with how the amount of debris White Oak ground up was measured.

Rauch and Ruck said they will forward the nearly $40,000 the company received from the Army in May to White Oak if the Oconomowoc firm agrees to help MLDC collect more money from the Army.

Syburg counters that he abided by the contract he had with MLDC, and if that company erred in negotiating its pact with the military, then MLDC - not White Oak - should eat the loss. In February, a Waukesha County judge sided with White Oak, issuing a default judgment against MLDC for $116,000 plus interest and fees, none of which has been paid.

Syburg and his lawyer, Terence P. Cahill, say they remain open to helping MLDC collect more from the Army so the dispute can be settled; they say MLDC so far has not followed through. The Army told Feingold in December that MLDC has not responded to questions about its invoice.

Since it paid MLDC $38,962 for White Oak's cleanup at Fort McCoy, the Army says it considers the matter closed.


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