Home Depot was sued in 2008 by two whistleblowers claiming that the company had violated the False Claims Act by selling products that did not comply with the Trade Agreements Act (“TAA”) to the U.S. government through its GSA Schedule contract. The United States has not intervened in the case. Home Depot recently moved for reconsideration of the court’s denial of its motion to dismiss the allegations. In denying Home Depot’s second attempt to get the complaint dismissed, the court carefully walked through the elements of False Claims Act liability and determined that the complaint was properly pled. U.S. ex rel. Scott v. Actus Lend Lease, LLC et al., Case No. 2:08-cv-07940 (Apr. 22, 2011 C.D. Cal.).
For example, the court determined that the complaint sufficiently alleged facts demonstrating the submission of false claims, by finding that the qui tam relators (i.e., whistleblowers) had provided a spreadsheet listing 118 representative examples of transactions involving products sold to particular government customers that were manufactured in non-designated countries. The court rejected Home Depot’s argument that its claims for payment themselves did not explicitly misrepresent compliance with the TAA, and relied on well-established case law holding that requesting payment for goods or services of lesser quality than those ordered by the government or that failed to meet contractual requirements or specifications can also constitute false claims for payment. Note that this case differs from other recent False Claims Act actions against GSA Schedule contractors alleging TAA non-compliance, e.g., the Folliard case, which were dismissed because the relators failed to show that the government had actually purchased the non-compliant products.
The court then determined that the complaint contained facts to support the allegation that Home Depot knowingly presented the false claims to the government because the relators had alleged that, although Home Depot knew that its GSA Schedule contract required compliance with the TAA and that it sourced products from China, a TAA non-designated country, the company knowingly failed to “institute any mechanism” to ensure that TAA non-compliant items were not sold off its Schedule contract to the government.
It is vitally important for GSA Schedule contractors to ensure, both at the start of contract performance and on a regular basis throughout the life of the contract, that items offered for sale to the government are compliant with the Trade Agreements Act. Implementing a process through which a Schedule contractor investigates at regular intervals the source of products listed for sale on its Schedule contract is advisable. Often times companies change suppliers, or suppliers themselves change their sources of products, so even if a Schedule contractor ensures at the start of its contract that all listed products are TAA compliant, it should not assume its Schedule is TAA compliant going forward. Particularly given the five year (or more) duration of a GSA Schedule contract, there can be numerous changes in the supply chain leading to TAA non-compliance. Conducting regular and on-going due diligence on the country of origin of products offered for sale on a GSA Schedule contract will go a long way toward protecting the contractor from a viable False Claims Act allegation.