"Although the General Atomics defendants have more than 1000 employees, they have the need for additional staffing from time to time to work on specific contracts," according to the Kholi complaint. "The vast majority of these additional staffing needs are for engineers and scientists who have worked on specific contracts for the General Atomics defendants in the past. Other staffing needs are more general and administrative in nature."
"Until 1992, the General Atomics defendants would obtain this additional staffing via competitive bidding from staffing agencies," Kholi's complaint says. "At any given time, the General Atomics defendants would be receiving their additional staffing from 7 to 8 staffing vendors." But that, the complaint says, was before Alliance came along.
After the younger Blue brothers set up Alliance, Kholi's suit alleges, "The staffing was provided at exorbitant rates far above competitive market rates. Rather than provide staffing at its cost plus the standard 20 percent mark up, Alliance Staffing Associates, Inc., had a conspiratorially incestuous agreement with General Atomics defendants to charge its cost plus an outrageous mark up of up to 30 percent.
"These above-market costs were then passed on through to the government by the General Atomics defendants in their government contracts, to the government's damage. The government has been further damaged by this practice because the General Atomics defendants would then add their own profit percentage to these already inflated costs in their government contracts.
"These inflated costs were nothing more than a subterfuge to steal money from the United States and pass it on through to the sons of [James] Neal Blue," Kholi alleges.
For their part, federal prosecutors charge that the cost to taxpayers of this alleged hanky-panky, involving each of three major federally sponsored programs at General Atomics, was staggering. Under its Department of Energy contracts, the government says, the company submitted "at least 513 invoices for payment and received payments of at least $438,140,354 from the United States pursuant to those invoices" during the period from July 1, 1992, to the present. During the same period, Department of Defense contracts totaled "at least $119,000,000," and contracts from the federally sponsored National Science Foundation to operate the San Diego Supercomputer Center amounted to "at least $90,000,000."
The government says that once Alliance was established, the amount of business it did with General Atomics rapidly grew into eight figures. "On or about July 6, 1992, General Atomics awarded Alliance...a blanket purchase order for temporary labor in an amount not to exceed $5,400,000. On or about July 20, 1993, General Atomics modified [the purchase order] to increase the maximum payment to $17,400,000.
"Thereafter Alliance was effectively the sole-source supplier of temporary employment labor used by General Atomics on federal contracts and grants. On or about October 4, 1995, General Atomics again modified [the purchase order] to increase the maximum payment to $21,650,000."
But that, the government alleges, wasn't the worst of it. A year after the Blue brothers formed Alliance, it was decided that General Atomics would farm out its janitorial business to the company. "Prior to July 1993, janitorial and cleaning services at General Atomics' facilities in the San Diego area were performed by General Atomics' employees. On or about July 13, 1993, General Atomics awarded Alliance...a blanket purchase order for janitorial and cleaning services not to exceed $721,600. On or about March 18, 1994, General Atomics raised the ceiling to $747,600."
The circumstances of that contract were, say federal attorneys, more than a bit suspicious. "Alliance had never provided janitorial or cleaning services. Alliance's executives and managers had no experience in furnishing janitorial or cleaning services, and Alliance did not employ any janitors nor own any janitorial equipment or supplies.
"General Atomics did not solicit bids or proposals from existing janitorial services companies and did not conduct a price analysis to determine whether the rates it agreed to pay Alliance were comparable to prices charged by existing janitorial services for comparable services."
When, three years later, General Atomics did set up a formal bidding process, it was, the government alleges, "a sham."
"On October 30, 1996, General Atomics formed a 'Janitorial Selections Review Committee,'" purportedly to competitively bid janitorial services. Alliance and three other companies submitted proposals in response to a request for proposals issued by the committee. On June 13, 1997, General Atomics awarded the janitorial services contract to Alliance.
According to the complaint, "Alliance's bid price was the highest of the four bidders." Not only that, but "a 'janitorial bid evaluation' prepared by the committee in March 1997 ranked the bidders on qualitative factors in addition to price. Alliance ranked last on the committee's janitorial bid evaluation."
Although it had lost that competition, the complaint alleges, "Alliance, unlike the other bidders, was given an opportunity to submit a second bid with a reduced price.
"The committee eliminated two of the bidders who were ranked as superior to Alliance in the bid evaluation and whose bid price was lower than Alliance's on the grounds that they offered insufficient employee benefits. The committee then selected Alliance, even though its price, even after the rebid, was 12 percent above the bid of the remaining bidder, Merchant's Maintenance.
"A 'Price Reasonableness Memo' prepared by the committee on June 13, 1997, which purported to document the basis for the award asserted that Alliance was selected because it was the 'superior source' to Merchant's Maintenance in the employee-benefit area. However, the bid evaluation prepared by the committee in March 1997 had rated Merchant's superior to Alliance on the employee-benefits criterion, as well as superior overall.
"In sum," the complaint concludes, "General Atomics awarded the janitorial services contract to Alliance although its bid was the highest submitted, although it ranked last on the overall evaluation, and although it was ranked inferior to a lower bidder on the specific factor the committee claimed in the Price Reasonableness Memo was critical to the award."
Both Kholi and the government are seeking so-called treble damages, or three times the amount of money General Atomics allegedly misappropriated, to be awarded at trial. That could run into millions of dollars.