Three business partners struck a deal to pursue a state contracting incentive for veterans that they thought would win them more work – and money – from Cal Fire.
Two years later, former soldier Jason Alexander is out of the company he bought into with a $10,000 down payment from his Veterans Affairs disability pension.
And his partners, Jennifer Larson and Richard Carvalho, are suddenly on a short list of companies that are banned from doing any work with the state. Their decision to remove Alexander from Golden State Fire Support triggered an investigation that concluded they’d exploited the state’s so-called disabled veteran business enterprise program.
Their dispute reflects the high stakes at play when companies pursue a designation as a disabled veteran business enterprise. The perk qualifies companies for a 5 percent advantage when they compete for work, and in some cases puts them on a favored list with limited competition for smaller contracts.
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Golden State Fire Support gained that designation in 2015 with Alexander moving into an ownership role at the company his partners founded in 2013. It lost the favored status a little more than a year later.
“We went into this agreement in good faith with him, and then we found we could not trust him,” Larson said.
Alexander, 42, of Sacramento still sounds bewildered by his brief ownership of a company he thought he’d manage until retirement.
“How do you fire the owner?” Alexander asked. “This is something I put so much of my lifeblood into and it was stripped away from me, literally changing the locks.”
State departments have had a mandate since 1989 to steer 3 percent of their contracts to disabled veteran businesses, a goal that was long thought to be unrealistic. But the program has swelled recently, adding 700 companies in just the last two years.
Now, the state is awarding close to 5 percent of its contracts to disabled veteran businesses. In the 2015-16 budget year, the group earned about $349 million from state work.
“We’re really starting to see the numbers show up,” said Marty Keller, executive director of the Disabled Veteran Business Alliance. “It’s not only successful in terms of the bulk numbers but also in the number of disabled veteran businesses that are getting business because of this mandate.”
To gain the favored contracting status, companies must be under operational control of a disabled veteran, and that veteran must have at least a 51 percent stake in the business.
State departments set strict standards for the program. Caltrans, for instance, asks its primary contractors to hire disabled veteran businesses. If a project changes and the disabled veteran subcontractors lose work, Caltrans can punish the larger company by withholding payment or banning it from future projects.
Of the five companies disciplined for misusing the disabled veteran incentive since 2013, three were contractors that failed to employ disabled veteran businesses in ways they promised in their bids. Two others, including Golden State Fire Support, were punished for misrepresenting control of the business, according to documents The Bee obtained through the California Public Records Act.
Golden State Fire Support targeted a small but competitive set of contracts for companies that provide emergency equipment to Cal Fire. In a good year, owners of the water tender and bulldozer companies say they can earn about $150,000 from Cal Fire.
Gaining a designation as a disabled veteran business can pay off for the companies because Cal Fire calls before turning to civilian-owned companies. This year, Cal Fire has 88 registered disabled veteran businesses that get first priority for work on fire lines.
Carvalho and Larson had been in business for two years before they sold a majority stake in their company to Alexander, a friend of theirs whom former firefighter Carvalho had met while leading a local water rescue course.
Both sides dispute who first broached the idea of Alexander using his status as a disabled veteran to help the company.
Alexander says Carvalho asked him to put in the paperwork; Carvalho and Larson say it was Alexander’s idea.
All of them agree they thought they’d thrive together with the company registered as a disabled veteran business.
To take control of the company, Alexander put forward a down payment and agreed to pay Larson about $23,000 over time to fully acquire his shares. He also agreed to take on 51 percent of the company’s ongoing expenses when he was appointed its chief executive in April 2015.
His stake sounded substantial, but his contribution of $33,000 was only a fraction of the money Carvalho and Larson had put into the company. Its water tenders and engines cost them hundreds of thousands of dollars.
The partnership collapsed a little more than a year later, in the peak of a busy firefighting season.
Larson confronted Alexander and accused him of failing to pick up his share of the company’s expenses. She wanted Alexander to pay more than $100,000 for rent, insurance, salaries and equipment purchases.
Alexander said her remarks blindsided him. Their argument escalated until Larson had the locks changed on the company’s warehouse to keep him out, they said in interviews and acknowledged in minutes from an August 2016 company meeting.
Court documents and text messages from that time show fierce fighting between the former partners.
In appeals she submitted to the state, Larson said that Alexander intentionally damaged company vehicles and placed hidden cameras around their properties. Alexander filed a request for a restraining order in Sacramento Superior Court, claiming Carvalho and Larson had threatened him and stalked his home.
The company continued accepting work from Cal Fire that summer, angering Alexander. He called Cal Fire to report that he was out of the company, meaning that it no longer should qualify as a disabled veteran business.
In October 2016 – two months after he was removed from the company – Alexander arranged for Cal Fire to send him an $81,974 check for Golden State Fire Support’s work that summer. He opened a bank account in the company’s name and deposited the money there.
That move infuriated Carvalho and Larson. They arranged for the state to rescind the money and reissue it to the company, arguing that Alexander had fraudulently represented himself as the company’s owner, according to court documents.
Meanwhile, Alexander’s phone call disclosing his separation from the company set in motion an investigation that would lead to harsh sanctions on the company.
It uncovered that Carvalho and Larson had begun an application with a different veteran in 2014 to register their company as a disabled veteran business.
When Cal Fire and the state’s Department of General Services contacted Larson about Alexander’s removal from the company, Larson confirmed that he was out. She asked for time, adding that the company was selling a stake to a third disabled veteran, according to evidence from the state investigation.
“We honestly tried to do everything in the law as to how we understood it,” Carvalho said.
But state investigators saw an incriminating pattern in the sequence of veterans who considered working with Larson and Carvalho.
“These disabled veterans were and are, in substance, majority shareholders only with respect to documenting ownership of the business by disabled veterans for the purpose of qualifying for DVBE certification. These veterans were never in position to control and manage the business,” reads a March 2017 investigation report from the Department of General Services.
That report also angered a clique of disabled veterans who closely watch the program. They contacted Alexander, and told him he was the victim of a “rent a veteran” scheme.
On Sept. 11, Carvalho and Larson accepted the state’s decision to suspend their company. Golden State Fire Support cannot work for the state for three years. It’s still in business, working on calls from the U.S. Forest Service.
Their dispute with Alexander isn’t over. They’re suing him in Sacramento Superior Court, trying to recover more than $100,000 they say he owes them from expenses the company incurred in the year he led it.