Verizon Communications, Inc. recently paid the U.S. government $93.5 million to resolve False Claims Act allegations that it overcharged the government on voice and data telecommunications services contracts. In addition to the significance
of the amount paid, the case is notable for both the government’s aggressive enforcement of FAR provisions and the fact the alleged fraud occurred in the midst of a massive and complex telecom merger. Both underscore the need for timely and astute Government Contracts counseling.
Verizon subsidiary MCI Communications Services Inc. dba Verizon Business Services (“MCI”) is alleged to have invoiced the General Service Administration (“GSA”) for a variety of federal, state and local taxes and surcharges in violation of the contracts or applicable regulations in connection with the FTS2001 and FTS2001 Bridge contracts to provide voice and data telecommunications to an array of federal agencies. The Department of Justice’s (“DoJ’s) joint investigation with GSA’s Office of the Inspector General found that Verizon and MCI submitted false claims under the contracts for the reimbursement of property taxes, common carrier recovery charges and unallowable surcharges — charges that the government alleges are not directly reimbursable under the FTS2001 contracts.
According to the complaint in United States ex rel. Stephen M. Shea and 2Probe LLC v. Verizon Communications, Inc., MCI began submitting fraudulent invoices to GSA in 1999 that included surcharges for federal, state and local taxes, as well as certain duties, bundled into line items that “conceal the true nature of the charges.” FAR 52.229-04, among other provisions governing the FTS2001 contract, states, “[u]nless otherwise provided in this contract, the contract price includes all applicable Federal, States and local taxes and duties.” Since the FTS2001 contract did not provide for tax-related surcharges, MCI’s surcharges violated the reg, according to the complaint.
The government alleged the fraud lasted from 1999 to 2010. In 2006, Verizon acquired MCI for $6.75 billion during a period of frenzied consolidation in the telecom industry. Verizon inherited the FTS2001 contract –and the government alleges the fraudulent billing continued unabated.
The government learned of the alleged fraud from relator Stephen Shea, a telecom consultant who assisted corporations in managing telecom costs. According to the complaint, Shea first noticed the errant surcharges in the communications bills of his corporate clients. (The other relator, 2Probe LLC, is owned by Shea and a Delaware-based corporate litigator.) GSA’s Inspector General and DoJ then jointly investigated the matter. DoJ announced the settlement on April 5. Verizon agreed to $92.7 million plus interest; the whistleblowers’ share has yet to be decided.
“This $93 million recovery should make contractors realize that we are firmly committed to ensuring the integrity of corporate billing practices with respect to government programs,” said U.S. Attorney for the District of Columbia Ronald C. Machen, Jr., in a statement.
The case offers lessons. First, it pays to closely scrutinize the myriad regulations incorporated into government contracts. And such scrutiny is all the more crucial during fast-moving corporate deals, when contractual details can get lost in the shuffle.