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False Claims Act settlement underscores importance of government contracts-specific M&A diligence

The US Department of Justice (DOJ) recently announced a settlement that highlights a key diligence consideration when acquiring a government contractor that performs work set aside for small business concerns.

Specifically, Numet Machining Techniques, LLC (Numet); Numet Industries, Inc.; KCO Numet, Inc.; and Kidd & Company, LLC (collectively the Numet Entities) recently entered into an agreement with the DOJ under which the Numet Entities paid approximately $5.2 million to resolve allegations that they violated the False Claims Act by erroneously certifying small business status in connection with 22 set-aside contracts, which were awarded to Numet following a 2011 acquisition of the company.  Notably, the alleged fraud that precipitated the settlement was discovered in connection with diligence performed when Numet was in the process of being sold to another entity in late 2019.

This alert provides an overview of the Numet settlement and discusses diligence considerations when acquiring a company that performs, or has performed, government contracts set aside for small business concerns.

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