Contracting for the federal government is aspecialized but lucrative field. Small businesses that managed to navigate thearcane rules for bidding for government jobs landed more than $83billion in federal contracts last year, aided by policies that encourageagencies to award a fixed percentage of work to smallcompanies. The process is complex and often contentious: It's not uncommonfor losing bidders to file protests, arguing, among other things, that thewinner shouldn't have qualified for set-asides.

Saiz Construction, a Salt Lake City-basedcompany that qualifies for federal jobs reserved for small businesses owned bymembers of disadvantagedgroups, just won another kind of legal battle. Back in 2011, the NativeAmerican-owned company filed a whistle-blower complaint alleging that a largercompany had used its relationship with Saiz to win contracts set aside forsmall businesses. On March 21, the Department of Justice announcedthat the larger company, Salt Lake City-based Okland Construction, had agreedto a $928,000 settlement—and that Saiz Construction and its owner, Abel Saiz,were entitled to $148,480 plus $86,000 in legal fees.

"Large businesses must not be allowed tofraudulently obtain access to contracts set aside for small businesses," SmallBusiness Administration Inspector General Peggy E. Gustafson said in a press release.

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Okland says it did no wrong, and that thecompany settled to avoid a costly legal battle. "We dispute all of theallegations completely," says John McEntire, chief financial officer of Okland,which has 600 employees. "[Saiz] made a lot of money with us, and we'redisappointed in him and in the federal government."

The Saiz case evolved from a mentor-protégéprogram that the SBA created in the 1990s. The idea was to encourage largecompanies to share expertise with small businesses vying for contracts, givinglarge companies incentive by letting them share the work—and profit—on jobs setaside for small business.

Saiz and Okland entered into such arelationship in 2002, according to the complaint, which was filed in U.S.District Court in Utah and unsealed last week. That helped Saiz win federalcontracts—mostly building jobs on Air Force bases—worth more than $18 million,based on data from Bloomberg Government.

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Those jobs should have been performed by ajoint venture formed by Saiz and Okland; instead, the complaint says thatOkland hijacked the partnership, using the smaller company "as a pass-throughor front" to obtain government contracts. When Saiz protested, Oklandthreatened to "bury [him] in court," the complaint says. McEntire declined todiscuss specific allegations.

The complex process of steering contracts tosmall and disadvantaged businesses has a longhistory of problems—mainlythat some of the awards allocated for small companies always seem to go tolarger ones. Whistle-blower suits that callout fraud give small businesses some leverage.