Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

Professional whistleblower Brady Folliard’s most recent False Claims Act suit against technology vendors alleging violations of the Trade Agreements Act (“TAA”) has survived a motion to dismiss with respect to two defendants (GovPlace and Government Acquisitions, Inc.), but otherwise has been dismissed for the other six defendants (which include Hewlett Packard and GTSI Corporation).

In this case, Mr. Folliard alleged that the defendants violated the False Claims Act by listing Hewlett Packard and Cisco products on their respective GSA Schedule and NASA Solution for Enterprise-Wide Procurement (“SEWP”) contracts that were manufactured in TAA non-compliant countries, that the defendants were aware that the products were not compliant and consciously misrepresented that fact to the Government, and that they submitted claims for money from the Government based on that misrepresentation. 

The district court dismissed the complaint against six of the defendants based on the False Claims Act’s “first-to-file” bar, finding that essentially the same allegations were leveled against the six defendants in United States ex rel. Crennen v. Dell Marketing L.P., 711 F. Supp. 3d 157 (D. Mass. 2010), which was filed prior to this case (and was subsequently dismissed). The court also determined that Mr. Folliard’s complaint was precluded on res judicata grounds as to defendant Hewlett Packard by a previous False Claims Act case Mr. Folliard had filed against that company, which was dismissed for failure to state a claim and failure to plead fraud with particularity (United States ex rel. Folliard v. Hewlett-Packard Company, 272 F.R.D. 21 (D.D.C. 2011).

Defendants GovPlace and Government Acquisitions, Inc. were the only defendants in this case who had not previously been sued by Mr. Folliard or another whistleblower alleging the same violations as in this case. While these defendants argued that the complaint should be dismissed against them based on Mr. Folliard’s failure to plead fraud with particularity, the court determined that the complaint contained sufficient information to meet the pleading requirements for a fraud case. Unlike other cases filed by Mr. Folliard, including the case against Hewlett Packard and United States ex re. Folliard v. CDW Technology Services, Inc., 722 F. Supp. 2d 20 (D.D.C. 2010), the court here determined that the complaint contained sufficient detail about the alleged misrepresentations of product compliance and identified specific procurement orders for non-compliant products.

This latest Folliard case is yet another reminder of the importance of ensuring from the outset that products listed for sale on GSA Schedule contracts as well as other government contracts are compliant with the Trade Agreements Act, putting measures in place to routinely re-affirm the country of origin during contract performance, and promptly removing non-compliant products. It is also a reminder that individuals beyond those who meet the typical whistleblower profile(i.e., disgruntled employees or ex-employees) are on the lookout for any indication of possible TAA non-compliance and could seize upon such information and file a False Claims Act case against you.

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While the administrative tools of suspension and debarment allow the government to prohibit entities from receiving contracts or grants directly, the procurement regulations also contain restrictions on prime contractors’ ability to subcontract with suspended or debarred entities. Historically, these restrictions, found at section 52.209-6 of the Federal Acquisition Regulation, have:

• Prohibited government contractors from entering into subcontracts over $30,000 with any entity that is excluded from government contracting (there is a “compelling reason” exception). This restriction has been limited to “first-tier subcontracts,” meaning suspended or debarred entities could work as government subcontractors at the 2nd tier or below.
  
• Required government contractors to collect written certifications from first-tier subcontractors with subcontracts over $30,000 stating whether the subcontractor or any of its principals were suspended, debarred, or proposed for debarment.

In response to a legislative expansion of the definition of “procurement activities” to include, with certain commercial exceptions, subcontracts at any tier, these requirements were revised by an interim rule issued in December 2010. The interim rule includes two key changes: it exempts certain subcontracts from coverage regardless of whether they are over $30,000 and, for the first time, applies the restriction and certification requirements to lower tier subcontractors. Where the revised version of the clause applies, a contractor’s obligations now depend on whether (1) the items being acquired qualify as “commercial-off-the-shelf” (COTS) items, defined as commercial items sold in substantial quantities in the commercial marketplace and offered to the Government without modification (excluding bulk cargo such as agricultural or petroleum products) and (2) the prime contract is for non-commercial or commercial items:

• If the prime contract is for a non-commercial item, the prime contractor must apply the prohibition and certification provisions to all lower-tier non-COTS subcontracts over $30,000.
  
• If the prime contract is for a commercial item, the prime contractor must apply the prohibition and certification to only first-tier non-COTS subcontracts.
  
• If the subcontract is for COTS items:
  
  • there is no restriction on subcontracting with suspended or debarred parties regardless of the amount of the subcontract
    
  • no suspension/debarment certification is required from the subcontractor
    
  • there is no requirement to flow down the requirement

Because we are now beginning to see the revised provision in contracts, we suggest that contactors, both primes and subs, review the new clause to ensure your policies and procedures take the revisions into account. While the changes present an opportunity to limit certifications required from COTS subcontractors, unless a prime contractor can be certain that a subcontractor is providing only COTS items a certification regarding suspension and debarment is still recommended. More important is the new requirement to flow down the provision to non-COTS lower tier subcontracts over $30,000 where the prime contract is not for a commercial item.

We note that the expansion of the definition of procurement activities to include subcontracts at any tier is a further indication of the reach of government procurement regulations. While the exceptions for certain commercial or COTS items contracts are helpful, government contracting has become more onerous, yet again, for non-commercial item contractors and subcontractors.

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Both Derek Mullins and Gunjan Talati contributed to this post.

In One Largo Metro LLC et al., B-404896 (June 20, 2011), GAO sustained protests by three disappointed offerors, challenging GSA’s award regarding a lease of office space in suburban Maryland for the Department of Health and Human Services. Crowell & Moring attorneys represented King Farm Associates, LLC (“King Farm”), one of the protesters. 

In sustaining the protests, GAO found that the Head of the Contracting Activity (“HCA”) rejected the lower-level evaluators’ conclusions without articulating an adequate basis for doing so. The Agency’s source selection evaluation board (“SSEB”) had initially recommended award to King Farm. The source selection authority (“SSA”), however, raised concerns about the SSEB’s rationale for its ratings and directed it to reevaluate its recommendation. After a second evaluation that identified numerous technical differences between the proposals, the SSEB again recommended award to King Farm. The SSA, despite disagreement with the SSEB’s conclusion about the relative technical merits of the offerors, adopted the recommendation. The HCA then reviewed the SSA’s source selection decision. Rejecting the ultimate conclusions of the SSEB and SSA, the HCA summarily decided that Fishers Lane presented the best value to the Government.

Although GAO acknowledged the well-settled rule that source selection officials are not bound by the recommendations of lower-level evaluators, GAO found that the HCA failed to meaningfully consider not only a number of evaluated differences between the proposals, but also “considerable disagreement between the SSEB and the SSA concerning the relative merits of the proposals.” Instead, GAO determined that the HCA mechanically compared the percentages of adjectival ratings assigned to each offer by the SSEB and issued a conclusory pronouncement that Fishers Lane represented the best value to the government. GAO concluded: “In the absence of a documented, meaningful consideration of the technical differences between the offerors’ proposals, the HCA could not perform a reasonable tradeoff analysis.” 

GAO also sustained King Farm’s challenge to GSA’s evaluation of proposals under the access to amenities subfactor. The solicitation provided that offerors’ proposals would be evaluated for both the “quantity and variety” of specified amenities within a certain distance of the proposed office space, but GAO found that GSA improperly deviated from this requirement by considering only the amount of amenity categories. 

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