On May 25, 2010, the Justice Department announced an $87.5 million settlement with EMC  for alleged false claims associated with EMC’s GSA Schedule contract. The settlement comes out of a series of qui tam suits filed against IT companies and systems integration consultants by relators Norman Rille and Neal Roberts in the Eastern District of Arkansas in 2004. The Justice Department intervened in the cases.

While some of the allegations were unique to each defendant, the common thread throughout the cases was the allegation that the IT companies’ improperly made payments of “finders fees,” “influencer fees,” rebates, and the like to companies (referenced in the complaints as systems integration consultants or alliance partners) who made recommendations to the U.S. Government about which IT products and services to procure. The relators’ asserted that such payments were kickbacks that violated the Anti-Kickback Act, and also resulted in false claims being submitted to the Government.

The recent EMC settlement serves as a reminder to government contractors, particularly those in the IT community, that payments to third parties for influencing Government purchases of one’s products or services – particularly when such payments are not disclosed to the Government – are risky at best. The settlement is interesting, though, for a second reason. It contains a clause  addressing EMC’s solvency that the Justice Department has not, to date, typically included in its settlement agreements: 

“EMC warrants that it has reviewed its financial situation and that it currently is solvent . . . , and shall remain solvent following payment to the United States of the Settlement Amount. . . .”

Is the Government worried that EMC’s payment of the settlement amount could prejudice other creditors under the bankruptcy laws? Is this clause going to be a standard clause in settlement agreements with the U.S. Government going forward? Will it be effective in precluding creditors from challenging settlements with the Government?