Case 2:09-cv-00809-SRB Document 1 Filed 04/17/2009 Page 1 of 10

1 DIANE J. HUMETEWA
United States Attorney
District of Arizona
2
ROBERT K. LU
3 Assistant U.S. Attorney
Two Renaissance Square
40 North Central Avenue, Suite 1200
4 Phoenix, Arizona 85004-4408
Telephone: (602) 514-7500
Facsimile: (602) 514-7760
5 E-Mail: robert.lu@usdoj.gov

6 UNITED STATES DISTRICT COURT

7 DISTRICT OF ARIZONA

8 United States of America,

9 Plaintiff,
COMPLAINT
10 v.
11 Ernest Robert McFarland,
12 Defendant.
13
14
15 Plaintiff, the United States of America, by its undersigned attorneys, allege as follows:

16
17 INTRODUCTION

18 1. This is a civil action brought by the United States, to recover treble damages

19 and civil penalties under the False Claims Act, as amended, 31 U.S.C. §§ 3729-3733, arising
20 from a fraud upon the United States Department of Interior (“Interior”) and the General
21 Services Administration (“GSA”) in connection with construction contracts for the Grand
22 Canyon National Park and the Lake Mead National Recreation Area.
23
24 JURISDICTION AND VENUE

25 2. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1345 and its

26 general equitable jurisdiction.

27 3. Venue is proper in the District of Arizona pursuant to 31 U.S.C. § 3732, and 28

28 U.S.C. §§ 1391 and 1395(a).

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1
PROGRAM BACKGROUND
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4. Interior and GSA are agencies or departments of the United States. The
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National Park Service (“NPS”) is an agency of Interior. The Grand Canyon National Park
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(“GCNP”) and the Lake Mead National Recreational Area (“LMNRA”) are agencies under
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the authority of the NPS.
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5. Federal construction contracts, including those administered by Interior and
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GSA, are subject to the “Miller Act,” 40 U.S.C. §§ 3131-3134, and the Federal Acquisition
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Regulations (“FAR”), 48 C.F.R. Chapter 1, et seq. Both the Miller Act and FAR requires a
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prime or general contractor to obtain performance and payment bonds (i.e., surety bonds) for
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all federal construction contracts that exceed $100,000. This requirement is to ensure that in
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the event of default by the general contractor, third parties or sub-contractors are protected.
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6. In addition to the bonding requirements, general contractors working under
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federal construction contracts are also required to provide certification of progress payments
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to any subcontractors that they use. These progress payment certification forms are officially
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known as Certification of Progress Payments Under Fixed-Price Construction Contracts, GS
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form 2419 (hereafter, the “Progress Payment Forms”). A general contractor is required to
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make these certifications in order to receive continuing contract payments under federal
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construction contracts.
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20
PARTIES
21
7. Pacific General, Inc. (PGI) was a construction management company with its
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corporate office located at 26054 Acero Street, Mission Viejo, California. PGI entered into
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construction contracts with various federal government agencies, including GSA, Interior,
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GCNP and LMNRA. PGI obtained federal government construction contracts, and acted as
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the general contractor, and hired local business entities as subcontractors to complete the
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work while PGI managed the projects.
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1 8. Defendant Ernest Robert McFarland (“McFarland” or “defendant”) was the

2 President and owner of PGI, and was responsible for the daily operations and the overall
3 management of the company. Defendant McFarland was responsible for obtaining and
4 securing surety bonds for federal government construction projects. As President of PGI,
5 McFarland also reviewed company invoices, subcontractor payment reports, which identified
6 the status of PGI billings and invoices to the government and payments to PGI
7 subcontractors.
8
THE FRAUDULENT SCHEME
9
9. On or about June 4, 1999, defendant McFarland signed a GSA Indefinite
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Delivery Indefinite Quantity contract, Contract Number GS-09P-99-KSD-0029 (hereafter,
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the “Contract”). The Contract is a master/umbrella contract administered by Interior and
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GSA from which individual construction task orders could be issued. Defendant McFarland
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entered into the Contract in response to a GSA solicitation for construction services in the
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States of Arizona, California, Hawai’i, and Nevada.
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10. The Contract required that individual task orders be issued against the
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Contract. The Contract, as well as the GSA solicitation, required PGI to provide payment
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and performance bonds (or surety bonds) in accordance with the FAR prior to start of work.
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Specifically, Section 7 of the Contract titled, Notice of Payment and Performance Bonds,
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stated:
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21 “Prior to start of work, the Contractor will provide the
performance and payment bonds required for construction
22 contracts over $100,000 by FAR 28.102. Pursuant to FAR
28.102-1 for subcontracts greater than $25,000.00 but not
23 greater than $100,000.00 selected alternatives of payment
protection may be considered. The performance and
24 payment bonds shall remain in effect during the Task Order
Construction Period.”
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11. Beginning in 2002, PGI was awarded a series of construction task orders (or
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specific construction projects) under the Contract. The federal construction projects awarded
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1 to PGI varied in price and complexity, and the work was to be performed at both the North
2 and South rims of the GCNP, as well as the LMNRA. The projects included designing and
3 constructing buildings and facilities, making repairs to buildings, renovating old cabins,
4 rehabilitating campgrounds, and performing a variety of other miscellaneous services. As a
5 construction management company, PGI subcontracted with other business entities to
6 perform the actual construction work on the projects at the GCNP and LMNRA.
7 12. PGI continued to receive task orders for construction projects at the GCNP and
8 LMNRA through the early part of 2003.
9 13. As part of their scheme to defraud Interior in connection with the work
10 performed at the GCNP and LMNRA, defendant submitted, or caused to submitted, two
11 types of false claims to NPS for payment.
12 (a) In the first type, defendant submitted, or caused to be submitted, to
13 NPS false certifications of compliance with bonding requirements under FAR and the
14 Miller Act. These false certifications resulted in false charges to NPS for surety bond
15 payments when in fact the underlying projects were never bonded.
16 (b) In the second type, defendant submitted, or caused to be
17 submitted, false progress payment certification forms to NPS in which PGI falsely
18 certified the company had paid its subcontractors when in fact no such progress
19 payments had been made to the subcontractors.
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A. False Certification Of Compliance With Bonding Requirements
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14. In January 2002, PGI began experiencing financial difficulty, including issues
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with its working capital, net worth, and cash flow. The situation became so severe that it was
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difficult, if not nearly impossible, for PGI to obtain bonds. In fact, between 2002 and 2004,
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PGI was not able to obtain any bonds because of concerns among industry underwriters
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about PGI’s financials, cash flow, and backlog of incomplete and ongoing construction
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projects.
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1 15. Defendant McFarland knew that the construction projects that PGI was
2 awarded under the Contract were required to comply with the bonding requirements as set
3 forth in FAR and the Miller Act because:
4 (a) The GSA notified PGI and defendant McFarland that all contracts for
5 GCNP and LMNRA had to be bonded;
6 (b) The PGI Operations Manual specifically set forth the requirements to
7 acquire payment and performance bonds on all government contracts;
8 (c) Defendant McFarland’s own personal bonding agent, Eric Lowey,
9 specifically informed him of the bonding requirements;
10 (d) The former Business Unit Manager of PGI, Kenneth Fischer, knew that
11 construction projects at GCNP awarded to PGI were required to be bonded and
12 Fischer explained the same to defendant McFarland about this bonding requirement;
13 and
14 (e) As noted in paragraph 10, above, the Contract itself required PGI to
15 obtain surety and performance bonds.
16 16. As the owner of PGI, defendant McFarland was required to sign Indemnity
17 Agreements in order to obtain surety bonds for government construction projects. As a result
18 of entering into these Indemnity Agreements, McFarland became personally liable for all
19 projects bonded by PGI.
20 17. Following an investigation by NPS in the summer of 2003 based on complaints
21 from PGI subcontractors that they were not being paid by PGI for work completed at the
22 GCNP and LMNRA, it was discovered that defendant, through PGI, submitted numerous
23 invoices on construction projects for payment to NPS that were not properly bonded. These
24 invoices falsely certified to NPS that each of the construction projects had been properly
25 bonded as required by FAR and the Miller Act. The following are examples of false bond
26 invoices submitted by defendant for the construction projects under the Contract:
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1 (a) On or about February 28, 2003, McFarland made, or caused to be made,

2 and presented to NPS an invoice (Invoice No. 02GAZ25-1) containing false charges
3 totaling approximately $750.00 for surety bonds that were never obtained for Task
4 Order Number 821002004.
5 (b) On or about February 28, 2003, McFarland made, or caused to be made,
6 and presented to NPS an invoice (Invoice No. 03CGC06-1) containing false charges
7 totaling approximately $1,511.23 for surety bonds that were never obtained for Task
8 Order Number 821003015.
9 (c) On or about February 28, 2003, McFarland made, or caused to be made,
10 and presented to NPS an invoice (Invoice No. 03DGC08-1) containing false charges
11 totaling approximately $413.68 for surety bonds that were never obtained for Task
12 Order Number 821003014.
13 (d) On or about May 30, 2003, McFarland made, or caused to be made, and
14 presented to NPS an invoice (Invoice No. 03DMV07-1) containing false charges
15 totaling approximately $9,244.00 for surety bonds that were never obtained for Task
16 Order Number 836001227.
17 (e) On or about August 28, 2003, McFarland made, or caused to be made,
18 and presented to NPS an invoice (Invoice No. 03CGC14-1) containing false charges
19 totaling approximately $5,862.18 for surety bonds that were never obtained for Task
20 Order Number 8210030032.
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18. Defendant McFarland, through PGI, continued to submit numerous other
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invoices for construction projects to NPS containing false charges for surety bonds until the
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Contract was terminated by NPS on or about April 29, 2004.
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1 B. False Certification Of Progress Payments To Subcontractors

2
19. Under the Contract, PGI was required to submit Progress Payment Forms, in
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which PGI had to certify that it was paying its subcontractors. PGI was required to make the
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certification in order to receive contract payments under the Contract.
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20. Contrary to the certifications in these Progress Payment Forms, beginning in
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December 2003, NPS learned that PGI had not paid the subcontractors for work completed
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on GCNP and LMNRA projects.
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21. The following are a few examples of the numerous false certifications of
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progress payments to subcontractors, reviewed and approved by defendant McFarland,
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submitted by PGI to NPS:
11
(a) On PGI Invoice No. 02GAZ26-14, with a certification date of January
12
30, 2004, it was certified that PGI had paid its subcontractor Spray Systems of AZ on
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Task Order Number 831002003 when in fact PGI had not made such payments.
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(b) On PGI Invoice No. 03CGC13-5, with a certification date of January 30,
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2004, it was certified that PGI had paid its subcontractor Heywood Builders on Task
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Order Number 8210030026 when in fact PGI had not made such payments.
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(c) On PGI Invoice No. 03DGC02-11, with a certification date of
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December 31, 2003, it was certified that PGI had paid its subcontractors Hansen
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Plumbing, Reliance Electric, Sunshine Heating, Paragon Contractors, and Philpott
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Construction on Task Order Number 821003012 when in fact PGI had not made such
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payments.
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(d) On PGI Invoice No. 03CGC20-2, with a certification date of December
23
31, 2003, it was certified that PGI had paid its subcontractor R&W Excavating on
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Task Order Number 8210030031 when in fact PGI had not made such payments.
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22. In April 2008, Defendant McFarland admitted, in a plea agreement filed in the
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United States District Court for the District of Arizona, that he participated in a scheme to
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 Case 2:09-cv-00809-SRB Document 1 Filed 04/17/2009 Page 8 of 10

1 defraud the government. Defendant McFarland pled guilty to six counts of making false
2 statements in a scheme to fraudulently obtain funds via federal construction contracts.
3 (United States v. McFarland, et al., No. CR-07-731-PCT-NVW). Specifically, defendant
4 McFarland admitted that between November 2003 and January 2004, he fraudulently
5 obtained $348,652.99 from the government by falsely certifying that PGI was paying its
6 subcontractors for work on projects funded by federal construction contracts in the GCNP.
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8 FIRST CAUSE OF ACTION
False Claims Act, 31 U.S.C. § 3729(a)(1)
9 (Submission, or Causing the Submission, of False Claims)
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23. The United States repeats and realleges each allegation set forth above in
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paragraphs 1 through 22 as if set forth fully herein.
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24. By virtue of the acts described above, and in violation of 31 U.S.C. §§ 3729 -
13
3733, the defendant knowingly presented, or caused others to present, to an officer, employee
14
or agent of the United States, false or fraudulent claims to obtain payment or approval in
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violation of the False Claims Act.
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25. The United States paid the false or fraudulent claims because of the acts of the
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defendant and, as a result, the United States has incurred damages in an amount to be proven
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at trial.
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26. Pursuant to the False Claims Act, 31 U.S.C. § 3729(a)(1), as amended, the
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defendant are liable to the United States under the treble damage and civil penalty provisions
21
of the False Claims Act for a civil penalty of not less than $5,500 and not more than $11,000
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for each of the false or fraudulent claims herein, plus three (3) times the amount of damages
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which the United States has sustained because of the defendant’s actions.
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1 SECOND CAUSE OF ACTION

False Claims Act, 31 U.S.C. § 3729(a)(2)
2 (Using a False Record or Statement to Get a False Claim Paid)
3 27. The United States repeats and realleges each allegation set forth above in
4 paragraphs 1 through 22 as if set forth fully herein.
5 28. By virtue of the acts described above, and in violation of 31 U.S.C. §§ 3729 -
6 3733, the defendant knowingly made, used, or caused to be made or used, a false record or
7 statement to get a false or fraudulent claim paid or approved by the United States.
8 29. The United States paid the false or fraudulent claims because of the acts of the
9 defendant and, as a result, the United States has incurred damages in an amount to be proven
10 at trial.
11 30. Pursuant to the False Claims Act, 31 U.S.C. § 3729(a)(2), as amended, the
12 defendant are liable to the United States under the treble damage and civil penalty provisions
13 of the False Claims Act for a civil penalty of not less than $5,500 and not more than $11,000
14 for each of the false or fraudulent claims herein, plus three (3) times the amount of damages
15 which the United States has sustained because of the defendant’s actions.
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Claim For Relief
17
WHEREFORE, the United States demands judgment against defendant McFarland as
18
follows:
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(a) on Count I (Submission, or Causing the Submission, of False Claims), judgment
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against the defendant for treble the government’s single damages, plus penalties of $11,000
21
for each of the false claims;
22
(b) on Count II (Using a False Record or Statement to Get a False Claim Paid),
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judgment against the defendant for treble the government’s single damages, plus penalties of
24
$11,000 for each of the false claims;
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(c) that the costs of this action be taxed against the defendant; and
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1 (d) that the United States be granted such other and further relief as the Court shall
2 deem just and proper.
3 Respectfully submitted this 17th day of April, 2009.
4 DIANE J. HUMETEWA
United States Attorney
5 District of Arizona
6 S/Robert K. Lu
7 ROBERT K. LU
Assistant U.S. Attorney
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