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Philadelphia Cracks Minority Sub Scam

Friday, May 10, 2013

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Nearly a dozen public housing contractors in Philadelphia have admitted paying a minority-owned business for its name to circumvent the city’s anti-discrimination contract rules.

In what authorities call a “widespread” problem, the Philadelphia Office of the Inspector General has found that 11 prime contractors paid JHS & Sons Supply Company of Philadelphia for its name and minority-owned business certification to get around city contract laws.


UGI HVAC "colluded" with other parties in a minority contractor scheme, authorities said. UGI paid the City of Philadelphia $100,000 in a settlement.

The irregularities were uncovered during an investigation of 19 Philadelphia Housing Development Corporation contracts.

9 Agreements and Counting

So far, the city has signed a no-fault settlement agreement with one prime contractor and has negotiated compliance agreements with eight others.

“It was clear from the beginning that this problem was widespread,” said city Inspector General Amy L. Kurland. “These settlements meet our goal of ensuring that companies comply with our antidiscrimination requirements. Our mission is to bring companies into compliance, not to put them out of business.”

Contractors Fined, Suspended

Investigators first discovered that prime contractors were using JHS to get around city requirements in a public housing weatherization contract with UGI HVAC Inc. UGI describes itself as a 127-year-old provider of HVAC, weatherization, plumbing and fuel line services. With four offices, the company serves 15 counties around Philadelphia.

In that case, the Inspector General’s office “established that William Betz Jr. Inc. had colluded with JHS and UGI to make it appear that JHS had provided equipment and supplies when Betz was, in fact, the supplier.”

In January 2012, the city signed a no-fault settlement agreement with UGI, which agreed to pay the city $100,000; increase minority-business participation in future contracts; and adopt new policies and procedures to comply with the city’s anti-discrimination requirements.

The city also removed JHS from the Office of Economic Opportunity’s registry of certified minority-owned businesses. JHS could not be reached for comment Thursday (May 9). The company was labeled as "closed" on yellowpages.com.

No-Fault Settlement

In October 2012, the city signed a no-fault settlement agreement with Betz, which agreed to pay the city $128,000, comply with the provisions of an Equal Opportunity Procedures Policy, and “voluntarily declare itself ineligible to participate in city contracts for two years,” the Office of Inspector General said.

The case led to the adoption of Executive Order 03-12, which strengthened Philadelphia’s anti-discrimination policies and made it more difficult for companies to hire sham minority-, woman- and disabled-owned businesses (M/W/DSBEs) as subcontractors.

All of the contracts in which JHS posed as a working minority subcontractor were signed before JHS was removed from the OEO registry, authorities said.

More Cases

After the UGI case, additional investigation revealed that JHS had provided no services to the 10 other prime contractors that had identified it as a subcontractor for 18 PHDC contracts ranging in value from $100,000 to $350,000.

Those contractors are Burke Plumbing & Heating Inc.; Clements Brothers and Sister Inc.; DMC Environmental Group Inc.; Buzz Duzz Plumbing, Heating, & Air Conditioning Inc.; Edward Hughes and Sons Inc.; Martin Johnson Plumbing and Heating Inc.; Paragon Contracting; J.J. Magnatta Inc.; John Stevenson Inc.; and S. Murawski & Sons.

Go-Betweens and Pass-Throughs

In most cases, authorities said, “Betz facilitated the arrangement between JHS and the prime contractor, providing JHS’ minority business certification and the supplies necessary to complete the job.”

As a result, Betz received more than $640,000 worth of business that was intended for legitimate minority-owned companies. JHS received at least $70,000 for “acting as a pass-through,” authorities said.

The city says most of the contractors that used JHS as a minority pass-through “were small businesses that did not fully understand the city’s anti-discrimination requirements.”

The contractors “reached out to other contractors or suppliers for advice on how to comply with the requirements when they should have sought help from the Office of Economic Opportunity,” the Inspector General’s Office said.

No Fines

Despite UGI’s violation of the city’s antidiscrimination policies, the compliance agreement with the remaining prime contractors “is general in scope” and does not include any fines.

“The purpose of the compliance agreement is to clarify the contractors’ legal obligation to provide meaningful opportunities for M/W/DSBEs and to educate the contractors about the assistance that the Office of Economic Opportunity can provide when searching for a qualified M/W/DSBE,” the city said.

“Moving forward, these prime contractors now understand what is required under Executive Order 03-12 and are expected to follow the City’s policies on M/W/DSBE participation.”

Following is a summary provided by the Office of Inspector General of the contracts involved in the scheme.

Prime Contracts Involving JHS


Number of

PHDC Contracts



Amount Paid

to Betz






















Buzz Duzz














Martin Johnson











J.J. Magnatta



















Tagged categories: Contracts; Enforcement; Government contracts; Laws and litigation; Residential contractors; Subcontractors

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