SAN FRANCISCO — The photograph on Home Depot's website shows a line of smiling soldiers unloading a truck stacked with power tools and other company wares.
The company says this shows "federal dollars go farther at The Home Depot." San Francisco Attorney Paul Scott says the photo also shows the company providing Chinese-made products in violation of the Buy American Act, and the U.S. Department of Justice is investigating.
A federal judge in April refused Home Depot Inc.'s bid to toss a whistle blower lawsuit Scott and other attorneys filed against the Atlanta-based company. Now the country's largest home improvement retailer is the latest company accused of running afoul of the Buy American Act, a 1933 law aimed at protecting U.S. jobs. The law requires that all materials used in construction of public projects originate in the United States or "designated countries."
Like most protectionist trade provisions, the Buy American Act has its supporters and detractors.
Proponents support the act as a way to boost the economy and preserve U.S. jobs. Critics complain the law limits the government's ability to make the best purchase on price and quality. Further, they argue that complying with the letter of the law is difficult, given the many exemptions and the reality that the component parts of many products originate in multiple countries. In addition, the law's critics say it's especially difficult for large companies such as Home Depot that carry thousands of products to ensure it follows the law with every government transaction.
The law has been through many revisions, and trade agreements with Canada, Israel and several other countries allow for use of material made in those countries. In the decades after its enactment, the law was little used. But with the explosion of international trade a number of companies have been accused of violating the Buy American Act over the last several years.
Earlier this year, the national hardware distributor Fastenal Co. agreed to pay $6.25 million to resolve DOJ claims made after a government audit found among other things that it violated its contract with the General Services Administration by providing Chinese-made goods.
Fastenal said in a statement that it settled because "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."
In the last six years, Staples Inc., Office Depot Inc. and OfficeMax Inc. have paid a combined $22 million to settle government claims they violated the act. In 2008, the Department of Justice announced that W.W. Grainger Inc. agreed to pay $6 million to settle claims the company overcharged the government and provided it with Chinese and Taiwanese products in violation of the Buy American Act.
At issue in the Home Depot case are GSA "schedule" contracts. Those contracts authorize any government agency to purchase tens of thousands of products from the company's website.
The lawsuit alleges that up to half of those products are made in China and other non-designated countries. The lawsuit was filed by two employees of another government contractor in 2008 that claimed their employer, the Actus Lend Lease Co., supplied noncompliant material in several military housing projects.
Before Actus was dropped from the case this year after paying an undisclosed amount of money to settle, lawyers discovered allegations that one of its corporate partners — Home Depot — was also violating the law.
The two Actus employees initially filed the so-called whistleblower lawsuit under seal, as all such claims on behalf of the government are filed. That gives the DOJ a chance to investigate the claims and decide if it wants to take over the lawsuit, which seeks to recover damages on behalf of the government.
All damages recovered are split between the government and the plaintiffs filing the lawsuit, with the government always receiving a larger amount.
Last year, the judge denied the government's request to keep the lawsuit under seal so it could continue its investigation.
After the lawsuit was made public, Home Depot asked the judge to dismiss the case, noting the government's non-intervention in the case. In March, federal prosecutors fired back at Home Depot with a court filing stating that it "would be erroneous to assume that the government's lack of intervention reflects its conclusion that the case lacks merit."
The DOJ continues to investigate the issue and still has not decided whether to join the case.
In court filings and a brief interview, Home Depot officials argue they have complied fully with the terms of the contract and the Buy American Act.
"We would never knowingly sell prohibited goods under any circumstances, and we have been cooperating with the government to provide requested information," said Home Depot spokesman Stephen Holmes. "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."
A judge has scheduled a trial for early next year.