Congress amended the civil False Claims Act in 1986 to give the statute more teeth as a fraud enforcement tool. Thirty years later, FCA litigation is as active as ever with more than 800 new cases filed in 2016, which is the second highest number of new cases on record. Not only was 2016 a major year for FCA recoveries (the third-highest ever) but the year also saw major developments ranging from a massive increase in civil penalties and a landmark decision on the implied certification theory of liability. In a “Feature Comment” published in The Government Contractor, C&M attorneys highlight some of the most important settlements and decisions from 2016 on key issues—from liability to damages, qui tam provisions, and more.
In a recent decision, the Court of Federal Claims rejected the Government’s motion to dismiss a lawsuit filed under the Tucker Act seeking to recover “risk corridors” payments pursuant to §1342 of the Affordable Care Act. In Health Republic Insurance Co. v. U.S. (Jan. 10, 2017), the Court held that “HHS is required to make annual risk corridors payments to eligible qualified health plans” under the ACA, and that the “plaintiff’s claim for unpaid risk corridors payments is ripe for adjudication.” The Court – which based its decision on several factors, including the risk corridors program’s purpose of stabilizing insurance premiums in the health insurance marketplace – also held that even if the ACA were ambiguous and the court were to apply a Chevron deference analysis, HHS has interpreted the program to require annual payments, and the agency’s own actions (i.e., making partial annual payments) indicate it believes the program is annual in nature.
In Lockheed Martin Integrated Systems, Inc. (ASBCA Dec. 20, 2016), a case involving a $100 million breach of contract claim stemming from purportedly unallowable direct subcontractor costs, the Board granted Lockheed Martin’s motion to dismiss the Army’s untenable claim “for failure to state a claim on which relief could be granted,” concluding that the government had “gone forward with a claim for over $100,000,000…based on nothing more than a plainly invalid legal theory.”
Specifically, the Board held that final decisions based solely on an audit report’s “conclusory assertions” and “unsupported conclusions” failed to satisfy the standards required by the Board’s rules for a valid claim and that although prime contractors have a generalized responsibility to manage subcontractors, the Army failed to establish that Lockheed Martin had breached any particular contractual obligation, express or implied, and specifically that Lockheed Martin had no obligation to (1) obtain or audit incurred cost submissions from subcontractors; or (2) to retain documentation supporting prime contractor billings for longer than the contract’s “applicable records retention” period.
ABS Development Corp. (ASBCA Nov. 17, 2016) highlights the importance of providing a fully-compliant certification for CDA claims over $100,000—which includes, according to the Board, the requirement for contractors to provide an identifiable and verifiable handwritten signature or digital e-signature. As the contractor in ABS discovered, the Board considers “typewritten” signatures, regardless of font, to be insufficient.
In ABS, the Board dismissed for lack of jurisdiction certain contractor claims that had been “certified” by means of typewritten names (in signature-font) because a typewritten name “cannot be authenticated, and, therefore, is not a signature.” The Board made clear that the CDA’s purpose is to bind contractors by means of a signed certificate that “cannot be easily disavowed by the purported author.” The Board explained that a signature “is a discrete, verifiable symbol that is sufficiently distinguishable to authenticate that the certification was issued with the purported author’s knowledge and consent or to establish his intent to certify.” Because anyone could type another person’s name on a signature block, the purported author could
disavow the certification and the signature would be nearly impossible to authenticate.
Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. This latest edition is hosted by partners David Robbins and Peter Eyre and includes updates on a FAR proposed rule, the National Defense Authorization Act for Fiscal Year 2017, and a Court of International Trade holding about what it means for merchandise to be “substantially transformed” in the U.S.
On December 15, 2016, GAO released its Annual Report to Congress for Fiscal Year 2016, including its updated Bid Protest Statistics for Fiscal Years 2012-2016. The Report, which GAO is required to submit pursuant to the Competition in Contracting Act of 1984, 31 U.S.C. § 3554(e)(2), identifies the most common reasons for sustained protests in FY 2016: (1) unreasonable technical evaluation; (2) unreasonable past performance evaluation; (3) unreasonable cost or price evaluation; and (4) flawed selection decision. And, oh boy, were there a lot of sustains.
The full statistics, copied below, reveal that GAO sustained nearly as many protests in FY 2016 (139) as it did in FYs 2015 and 2014 combined (140). Interestingly, however, the overall “effectiveness rate”—i.e., the percentage of cases in which the protester received some form of relief—ticked up only one percentage point from FY 2015 (from 45% to 46%). The increased percentage of sustained protests, combined with the similar (though steadily increasing) effectiveness rate, means that agencies took corrective action in far fewer meritorious protests. That’s a bit surprising given that, anecdotally at least, corrective action is still a common outcome in response to strong protest filings. It will be worth watching whether this was just a one year exception, or if we’ve now passed the high-water mark for corrective action seen in FYs 2014 and 2015.
Senator McCaskill’s bill, S.795 “A Bill to Enhance Whistleblower Protection for Contractor and Grantee Employees,” is on President Obama’s desk for signature. According to the Senate Report, the bill would make permanent the current pilot program, expiring this month, that ensures that employees of civilian contractors are protected from retaliation, namely that “anyone who reports the misuse of federal funds could not be demoted, discharged, or discriminated against because of the disclosure.”
While the pilot program has been in place for several years, the frequency of whistleblower reprisal actions has increased recently. Whistleblower protections have also been the subject of recent Congressional interest, and the Government Accountability Office is auditing the current pilot program. Rather than wait for the results of the audit, however, Congress chose to push forward with the current legislation (which has received bipartisan support) in the waning days of the Obama Administration. Should the bill become law, contractors and grantees might take the opportunity to reexamine their compliance with the pilot program, as well as review how whistleblowers are treated and how their allegations are investigated and documented in order to mitigate the risk of liability in face of rising pressure to sustain allegations.
Whistleblowers (and those who might claim that status following a negative employment action) have many methods of seeking government help to address their concerns, including qui tam lawsuits, wrongful termination litigation, and whistleblower reprisal allegations brought before various government agencies. Each of these actions invites the government into a contractor or grantee’s operations, as well as records, and increases pressure on the company. Continue Reading
Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without, with the latest edition hosted by partners David Robbins and Peter Eyre and including updates on GSA, NASA, and DoD rules, DIUx’s new guidebook, GAO protest dismissals, and a Supreme Court ruling on the False Claims Act. Click on one of the options listed below to listen.
On November 18, 2016, the Office of Government Ethics (OGE) issued a final rule revising the Standards of Ethical Conduct for Employees of the Executive Branch (“Standards”) applicable to the solicitation and acceptance of gifts from outside sources. See 5 CFR § 2635. The final rule imposes a duty to decline otherwise permissible gifts when the appearance of impropriety is present, adds new examples of how to apply the rules, codifies previous interpretations of the gift rule, and retains the $20 de minimis exception (despite pushback in comments to the proposed rule to raise the standard commensurate with inflation. ) Although Government employees are the primary subject of the final rule, the changes will have a direct impact on how contractors, referred to as “prohibited sources” can interact with Government officials. It is important for government contractors to understand that being implicated by a Government official’s violation of these Standards can lead to various consequences, such as facing public embarrassment, a tarnished reputation in the marketplace, suspension and debarment, or penalties for violating the bribery or illegal gratuities statutes.
The rule becomes effective on January 1, 2017. Continue Reading
Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. This latest edition is hosted by partners David Robbins and Peter Eyre and includes updates on defense acquisition, modernizing federal IT systems, and recent False Claims Act cases.