The U.S. Department of Justice’s (DOJ) recent $21.3 million civil settlement with Broadway Electric Inc., Cornerstone Contracting Inc., and two executives highlights the continuing False Claims Act (FCA) risk facing companies that participate in federal small business set-aside programs. Announced on June 9, 2026, the settlement resolved allegations involving contracts reserved for service-disabled veteran-owned small businesses (SDVOSB) and other eligible small businesses, and serves as a reminder that agencies and enforcement officials continue to scrutinize whether contractors satisfy the ownership, performance, and control criteria underlying their eligibility.

According to the DOJ, the alleged conduct spanned more than eight years and involved federal set-aside work awarded through companies that appeared to qualify as SDVOSBs or other small businesses, while Broadway and Cornerstone allegedly remained the real drivers of the contracting activity. The DOJ alleged that Broadway and Cornerstone were not merely supporting the eligible small businesses, but were exercising control over the contracts themselves, including by directing the work, making subcontractor decisions, and managing project finances, while the small businesses received only a limited fixed portion of the contract revenue.

The settlement also highlights the importance of addressing compliance concerns when they arise. According to the settlement agreement, the defendants admitted, acknowledged, and accepted responsibility for conduct that included continuing arrangements after at least one SDVOSB owner raised concerns about whether the arrangements complied with federal control and participation requirements.

The DOJ further alleged that the defendants did not make meaningful changes to how the arrangements were structured or operated. For contractors, that allegation reinforces the importance of evaluating and correcting potential eligibility issues before continuing to bid on or perform set-aside work.

Key Takeaways & Practical Implications

• Eligibility Must Match Reality: Set-aside compliance relies on how the business actually operates, not just how it is documented. Ownership records, operating agreements, and corporate structures all matter, but they are not the end of the inquiry. Agencies and enforcement officials may look behind those documents to determine whether the qualifying business truly controls contract performance and receives the benefits associated with that work.
   
• Economic Arrangements Can Create Enforcement Risk: Financial arrangements should be consistent with the roles the parties actually perform. Where the eligible small business receives only a limited or fixed payment while another entity controls the work or receives most of the financial benefit, the arrangement may raise questions about whether the small business is serving as the true contracting party or simply providing access to set-aside eligibility.
   
• Questions About Control Should Be Treated as Compliance Red Flags: Questions about control, affiliation, subcontracting limits, or eligibility should be treated as meaningful compliance issues, rather than mere technicalities. If those concerns arise during a teaming relationship or contract performance, contractors should assess whether the arrangement still satisfies applicable requirements and, where necessary, make and document corrective changes. Doing so can help demonstrate that the contractor took the issue seriously if the relationship is later reviewed by an agency, inspector general, or the DOJ.

Looking Ahead

The Broadway and Cornerstone settlement reinforces that compliance with small business contracting requirements depends on the substance of the relationship, not just the documents supporting it. Contractors should be able to show that the qualifying business directs the work, performs a legitimate role, and receives compensation that reflects its participation. Companies involved in SDVOSB and other small business programs should periodically review how their arrangements operate in practice so they can address eligibility concerns before those issues draw agency or enforcement scrutiny.

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