Home Depot Accused of Violating Buy American Act

June 30, 2011— -- Home Depot is the target of a lawsuit for allegedly selling goods manufactured in China and other prohibited countries to U.S. government agencies in violation of the Buy American Act, according to court documents.

The suit was filed in 2008 by two employees of another government contractor and alleges that "Home Depot had major sourcing operations in China for many years," as well as India, and that the company knew that certain brands and products were to be excluded from sale to U.S. government agencies because they were not compliant with the Trade Agreements Act.

The suit also says, "Home Depot affirmatively misrepresented to federal government customers that its GSA-scheduled contract 'covered everything in our store.'"

GSA is the federal General Services Administration, which supplies products for U.S. government offices.

The Buy American Act and Trade Agreements Act work together to promote the purchase of U.S. goods or goods manufactured in countries when it serves the nation's economic interest.

The Atlanta-based home improvement retailer, with more than 2,200 locations in four countries (including China), denies the allegations.

"We would never knowingly sell prohibited goods under any circumstances, and we have been cooperating with the government to provide requested information," Home Depot spokesman Ron wrote in a statement. "We believe the plaintiffs have an inaccurate view of the facts, so we look forward to presenting our side of this case as the process moves forward."

The plaintiffs' attorney, Paul D. Scott, said, "We're looking forward to having our day in court and having a jury of American citizens decide what they think of this case."

The U.S. Department of Justice had no comment about the allegations.

The Great Depression-era Buy American Act of 1933 was intended to produce jobs and keep the economy afloat.

"It's faulty logic to think that's going to benefit the United States to favor U.S. products if the government could buy foreign made products for lower prices," Stephen Bronars, senior economist with Welch Consulting, said.

"The view that if you do something yourself you're going to have closer to full employment ignores [the fact that] if you can get something more cheaply, it frees up resources you can allocate to something else."

But some disagree. This view "ignores the effect of trade on jobs and ignores the effect of trade on business," Robert E. Scott of the Economic Policy Institute said. " Globalization: Everybody wins except for most of us. That is in fact what happened."

While the Home Depot fends off the suit, the company continues to offer government buyers a look at how "Federal Dollars Go Farther at the Home Depot."

According to Scott's research, Americans lost 2.4 jobs from 2001 to 2008 because U.S. multinational corporations outsourced production companies to China.

"It's not in the interest of the United States," Scott said. "It has hurt us as producer of goods. It has hurt wages and it has hurt GDP," Scott said.

"I tend to think that U.S. companies are increasingly outsourcing production and I think that has hurt the American economy," said Scott, who views the Buy American Act as a net benefit to the U.S. economy.

Here's a Look a Cases Litigated After Allegations of Violating the Buy American Act or the Trade Agreements ActIn January, hardware supplier Fastenal paid out a $6.25 million settlement to the United States after an audit allegedly discovered the company "knowingly failed to meet its contractual obligations to provide the GSA with current, accurate and complete information about its commercial sales practices, including discounts afforded to other customers."

In a written statement, GSA Inspector General, Brian D. Miller stated: "This case is another demonstration of the value of OIG audits in helping to uncover fraud on government programs."

After the settlement, Fastenal released a statement, writing, "We continue to believe that we complied with our obligation under the GSA contract in all material respects. However, we felt a continuation of our dispute with the DOJ and GSA was not the best use of our resources."

The Winona, Minn.-based fastener distributor said in a news release at the time that the settlement was not an admission of wrongdoing.

Staples Contract, Office Depot Among Those Reaching Settlements

In 1998, Invacare, an Ohio medical equipment that provided the U.S. government with wheelchairs and other parts, paid the United States a $2.6 million settlement after allegations the company did not charge a similar discounted rate to the Department of Veterans and sold products that were not America made.

In a statement released after the settlement, Invacare said "both parties agreed to a compromise resolution of the dispute rather than entering into expensive and protracted litigation."

In 2005, Staples Contract and Commercial, a division of Staples Inc. of Framingham, Mass., shelled out $7.4 million to settle allegations that it submitted false claims when it sold office supply products manufactured in countries not permitted by the Trade Agreements Act to United States, accordingto the Department of Justice.

In 2005, Office Depot was the target of allegations that it sold goods from China and Taiwan or countries not permitted by the Trade Agreements Act. The office supply chain settled the claims by paying the United States $4.75 million.

In 2005, OfficeMAX paid a $9.72 million settlement after a suit filed under the qui tam, or whistleblower, provisions of the False Claims Act . The company allegedly sold products to the United States from countries not permitted under the Trade Agreements Act.

"This settlement is an example of the Department's determination to ensure that federal funds are protected from fraud and abuse," said Peter D. Keisler, then-Assistant Attorney General, in a statement. The OfficeMax and Office Depot suits were based on the same allegations as the Staples Contract and Commercial case.

In 2006, Corporate Express Office Products settled allegations of submitting false claims for selling products prohibited under the Trade Agreements Act to United States government agencies by paying $5.02 million.

In the settlement, Corporate Express denied the allegations, saying it had not made any false claims for payment under the contract and contended that the United States had no basis for the claim.