Last month, the U.S. District Court for the Eastern District of Washington denied a motion to limit damages against a government contractor, United States ex rel. Savage v. Washington Closure Hanford LLC, where the government sought several categories of damages for alleged False Claims Act (FCA) violations. With a case centered on a nuclear waste company falsely certifying compliance with small business plan participation requirements, the Court ruled that damages would not be limited to remedies provided in the contract.
A recent report from the Department of Defense (DoD) Inspector General (IG) identified a number of significant flaws regarding the Defense Logistics Agency’s (DLA) compliance with the Buy American Act (BAA) and the Berry Amendment. The IG’s findings will likely result in a renewed focus on both BAA and Berry Amendment compliance. As a result, contractors are likely to experience increased frustration as they seek to remain aligned with DLA policies. The IG’s report also draws further attention to the previously discussed government-wide effort by President Trump to both enhance compliance with the BAA as presently drafted and potentially strengthen the BAA through legislative action in the future.
On April 18, President Trump signed the “Presidential Executive Order on Buy American and Hire American” (the Order), which declares the Executive branch’s policy to buy American goods and rigorously enforce and administer laws governing entry into the United States of workers from abroad. The Order is keeping with President Trump’s campaign promises regarding hiring American workers and promoting U.S. manufacturing, and signals a renewed focus on domestic sourcing requirements as well as the likelihood of greater restrictions on work visas for non-U.S. citizens.
Over the past year, the big news for companies doing or considering business in Iran has been the scaling back of U.S. and EU economic sanctions. Many global businesses are now permitted to operate in this once prohibited market. Before we celebrate too enthusiastically, however, let’s stop for a moment to consider a potential challenge for some companies trying to capitalize on this new opportunity.
This time, we are focusing on a conundrum specific to companies that contract with the U.S. government.
Civil Investigative Demands (CIDs) are powerful pre-litigation tools the government frequently utilizes to investigate potential allegations of FCA liability. CIDs can be broad and invasive, time-consuming and expensive. What’s a company to do upon receipt of a CID? Is there any recourse? Unfortunately, neither case law nor published guidance offers the recipient much in the way of a formal, timely mechanism to challenge the scope or appropriateness of a CID. Nevertheless, there are certain practical steps one can take to reduce a CID’s scope that, in turn, will reduce disruption and expenses associated with CID compliance.
On June 23, 2016, the General Services Administration (GSA) released a final rule that will result in the most significant change to the GSA Federal Supply Schedules (FSS) program in the last two decades. 81 FR 41103 (New Rule). The New Rule introduces a transactional data reporting element to the FSS program, effectively replacing the current requirements relating to Commercial Sales Practices (CSP) disclosures and the Price Reduction Clause (PRC).
Under current FSS regulations, contractors are required to submit CSP disclosures with their initial offer for a FSS contract, which includes a broad disclosure of discounts the contractor offers to commercial customers for similar products and services. The CSP disclosures are used to identify a “tracking customer,” which consists of a customer or category of customers that will be tracked to identify pricing discounts to GSA customers. The PRC requires the contractor to monitor its ongoing commercial sales to ensure that the government receives the same price reductions given to the “tracking customer.” Through the New Rule, GSA is replacing the CSP disclosures and PRC requirements with a different method of award monitoring: transactional data reporting.
Bass, Berry & Sims PLC announces the launch of its new blog, Inside the FCA, which will provide ongoing updates related to the False Claims Act (FCA), including insight on the latest legal decisions, regulatory developments and FCA settlements affecting federal programs and government contractors. Inside the FCA focuses on providing timely updates for corporate boards, directors, compliance managers, general counsel and other parties interested in the organizational impact and legal developments stemming from issues potentially giving rise to FCA liability. Bass, Berry & Sims’ experienced team of attorneys work to provide an up-to-date understanding of compliance strategies, practical tips in handling internal and government investigations, coverage of the latest legal strategies and an analysis of defenses to FCA claims.
The blog’s cross-disciplinary roster of authors includes attorneys from the firm’s Compliance & Government Investigations and Government Contracts Practice Groups, as well as the firm’s Healthcare Fraud and Government Procurement Fraud Task Forces. Many of those attorneys have worked with various government enforcement agencies including the Criminal Fraud Section of the U.S. Department of Justice, various U.S. Attorneys’ Offices throughout the United States and the Tennessee Attorney General’s Office.
In a February 4, 2016, decision, United States ex rel. Wall v. Circle C. Construction, LLC, the Sixth Circuit summarily rejected the government’s assertion that the measure of damages in a False Claims Act (FCA) suit involving a violation of prevailing wage rate requirements was the total amount paid for the work. The Sixth Circuit’s rejection of the “total contract value” theory of damages in the prevailing wage rate context is a welcome development for FCA defendants who are faced with increasingly creative damages theories asserted by the government and the relator’s bar.
Circle C’s Army Contract
For a case that involved a relatively minor non-compliance with the prevailing wage rate requirements applicable to federal construction contracts, the Circle C. Construction case has a long history. Circle C entered into a contract to construct warehouses at the U.S. Army base at Fort Campbell, located in Kentucky and Tennessee. Pursuant to the Davis-Bacon Act, Circle C was required to pay electrical workers at least $19.19 per hour, plus a fringe benefit rate of $3.94 per hour. Circle C was also required to submit certified payroll for itself and its subcontractors.
Last month, the Sixth Circuit affirmed sanctions imposed by a district court against a relator and his counsel for bringing a frivolous False Claims Act (FCA) action. The ruling in United States ex rel. Jacobs v. Lambda Research, Inc., No. 14-3705, 2015 WL 1948247 (6th Cir. May 1, 2015) is a positive development for companies that have faced an increase in FCA actions in recent years. It also illustrates the use of a sanctions provision that is specific to FCA claims.
Lambda Research is a small business that contracts with the United States Navy to strengthen the metal components of warplanes. Terry Jacobs, the individual who brought the FCA case, worked for Lambda for two years before he left the company to become vice president of a competitor business, Ecoroll Corporation.
Lambda thereafter sued Jacobs in state court, alleging that Jacobs stole Lambda’s trade secrets and gave them to Ecoroll. A jury found Jacobs liable and awarded Lambda $8 million in damages. Additionally, the state court found that Jacobs misappropriated trade secrets willfully, and ordered him to pay Lambda $1.4 million in attorney’s fees.
Employee severance packages and settlement agreements often include a broad waiver of any claims, known or an unknown, which an employee may have against the company. Although such broad pre-filing releases are highly recommended, companies doing business with the government should be cautioned that these waivers do not always protect against False Claims Act (“FCA”) litigation. A line of federal cases has established that these so-called “pre-filing releases” are sometimes unenforceable against suits filed by whistleblowers, or qui tam actions, for public policy reasons.
Pre-filing releases bar qui tam actions only if the government was already aware of the fraudulent conduct that forms the basis for the employee’s allegations. The Ninth Circuit in an early case held that enforcing such a waiver where the government was not aware of the fraud until the filing of a qui tam complaint would be against public policy. U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995). The court noted that the FCA’s qui tam provisions are meant to incentivize whistleblowers to come forward with information that the government would not otherwise be able to obtain. Thus, when the government first learns about alleged fraud from a whistleblower complaint, the pre-filing release will not be enforced. This view is shared by the Fourth and Tenth Circuits. See U.S. ex rel. Radcliffe v. Perdue Pharma, L.P., 600 F.3d 319 (4th Cir. 2010); U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009).