ong-time East Grand Forks construction firm has agreed to pay $1.85 million to settle a federal lawsuit alleging it cheated a partner company and defrauded the federal government.
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VIEW ALL OFFERS | ADD YOUR BUSINESS The civil suit stemmed from a $19 million contract that R.J. Zavoral and Sons - headed by John and Peter Zavoral, both defendants in the suit - had entered into with the U.S. Army Corps of Engineers in 2004 to complete the Heartsville Coulee Diversion Project, a flood diversion project undertaken from 2004 to 2008 in East Grand Forks.
The firm would not have been eligible for the contract, except that it had entered into a joint venture with Ed’s Construction - a small Cass Lake, Minn., company owned by Edward Morgan, a member of the Leech Lake Band of Ojibwe Indians, according to the lawsuit.
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The contract was awarded to the companies as part of a program designed to leverage “socially and economically disadvantaged” small businesses such as Ed’s Construction. That program is run through the U.S. Small Businesses Administration.
But the lawsuit - filed in U.S. District Court in Minnesota in 2012 - alleged the East Grand Forks firm took advantage of Ed’s Construction by violating the agreement between the two companies and providing false information to the federal government in order to retain the contract.
Under the joint venture agreement, Ed’s Construction was entitled to just more than half of the profits, but the suit alleged Ed’s Construction was cheated out of his share of the profits and that R.J. Zavoral received most of the money.
Assistant U.S. Attorney David Fuller said Tuesday the U.S. estimated R.J. Zavoral earned $1.1 million more than it should have under the terms of the agreement.
Under the terms, Morgan was also designated the project manager and was responsible for overseeing all work done under the contract and approving any expenditures taken out of the companies’ joint bank account.
But R.J. Zavoral allegedly did not notify Morgan of charges to the bank account and allegedly did not seek his approval before hiring three subcontractors - all with strong ties to the Zavorals - to work on the project.
John and Peter Zavoral held executive positions in at least two of those three subcontracting companies.
The U.S. alleged in its original complaint the defendants did that to drive up the costs of the project and reduce the amount of money that would have gone to Ed’s Construction.
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The U.S. also argued R.J. Zavoral sent false reports to the Small Business Administration about the amount of work Zavoral had done, had multiple accounting inconsistencies, which did not match up with Ed’s Construction’s records, and was not transparent with Ed’s about accounting.
Neither the Zavorals nor Morgan could be reached for comment by press time.
The case had been scheduled to go to trial in January, but the parties decided to settle in December and the trial was canceled.
