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Desperate Measures from The Legal Edge

(As seen in the SmartCEO Magazine, April 2012)

Business is hard, and companies are reaching for results. In the process, some businesses take dangerous shortcuts and risk dire consequences.

Government gold rush: As business has dropped off in the private sector, more and more companies are lured by the prospect of easy money at the government trough. One of the prime targets is work set aside for minority and disadvantaged businesses. The problem is that plenty of companies that don’t qualify want to get into the act.

All too often, businesses that don’t qualify want to set up new companies with a person – who meets the standards – as a figurehead. These businesses don’t really want this person to run the new company. So they ignore the rules or attempt to disguise the real situation.

In other instances, a large business enters into a contract with the government and then subcontracts a portion of the work to a local, small, disadvantaged business to satisfy the requirements of the government contract. But then the large company fails to provide the disadvantaged business with any meaningful work. In essence, the big company is merely creating the appearance that it is satisfying the requirement of appropriately subcontracting with the disadvantaged company.

Too many companies treat the legal requirements for government contracts as if they were speeding on an empty highway. If no one will notice, then it must be OK.

But increasingly, those days are over. Governments at all levels – nationally and locally – are auditing companies for compliance with these legal requirements. And the penalties for violations can be severe. Non-compliant companies face not merely the loss of their contracts but also prohibitions on doing business with the government in the future and even criminal prosecution that can result in fines and imprisonment.

In some cases, all of these sanctions can be avoided with careful planning. Yet there are cases where the government requirements just don’t fit your business model. Yes, sometimes you just need to say, “No, that doesn’t work for me,” despite the lure of what seems like easy money. Don’t base your business decisions merely on the likelihood of getting caught violating the law. That’s gambling, not planning.

Easy money: Similarly, the private sector presents still other temptations that threaten to break the backs of companies. Consider the vast industry that rushed into existence to take advantage of the foreclosure crisis. Talk about an opportunity gone awry by the failure to follow rules and common sense. As I write this column, half a dozen large financial institutions are entering into a $25 billion settlement because of robo-signing foreclosure documents, submission to courts of improper affidavits to advance the foreclosures and other defects in the determination of who should lose their homes and how. Even with this settlement, these companies are still exposed to lawsuits and criminal prosecution by homeowners and government agencies.


Jack Garson is the founder of Garson Claxton LLC and leads the firm’s business and real estate practice groups. Jack serves as a legal advisor for numerous local, regional and national companies, focusing on business transactions, commercial real estate, commercial leasing, and construction law. In addition to providing legal counsel, Jack serves as a strategic advisor and negotiator for many clients, providing guidance on issues such as the growth and sale of businesses, liability and risk reduction, the hiring and retention of key personnel, and protecting and enhancing profitability, as well as negotiating the resolution of complex commercial disputes.

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