On June 2, 2011, the Department of Justice (“DoJ”) announced a $2.7 million settlement of a False Claims Act (“FCA”) case brought against Ultralife Corporation (“Ultralife”). The complaint alleges that Ultralife violated the FCA through the submission of false claims based on “defective pricing” under three contracts with the U.S. Army to provide lithium-manganese dioxide non-rechargeable batteries. The settlement arose out of a government investigation following a 2005 Defense Contract Audit Agency (“DCAA”) audit suggesting a potential $1.4 million pricing adjustment related to the contracts.
The settlement was first made public in April, 2011, in Ultralife’s Form 8-K filing. The Form 8-K reported that, in light of the possible treble damages and penalties associated with the pricing adjustment, the Company had decided to enter into settlement negotiations with the government. As Ultralife described in further detail: “We had certain ‘exigent’, non-bid contracts with the U.S. government, which were subject to audit and final price adjustment, which resulted in decreased margins compared with the original terms of the contracts.” The DCAA suggested the adjustment based on reductions in the cost of materials prior to the final negotiation of the contracts. This finding prompted a 2007 Department of Defense Office of Inspector General inquiry, which was later consolidated with the DCAA audit by the U.S. Attorney’s Office for the Western District of New York.
In negotiating with the Government, Ultralife took the position that the proposed adjustments could be offset with other cost increases also occurring prior to the final negotiation of the contracts. But, citing its desire to avoid further time and expenses, Ultralife agreed to a settlement with the Government to resolve the matter. In contrast to Ultralife’s description of the inquiry, the DoJ characterized it as a routine defective pricing allegation. According to the DoJ’s press release last Thursday, Ultralife provided government contracting personnel with false certifications regarding the company’s cost and pricing information for the three contracts in question; and thus, “improperly pass[ed] inflated costs on to the American taxpayers . . . .”
Because of the settlement, the complete details will not be discovered. But Ultralife’s characterization of the matter raises several issues. Most importantly, if the Army’s need to procure the batteries was so urgent that the Army only approached Ultralife, why was it necessary for it to require the company to submit a proposal, including certified cost or pricing data? Also—assuming Ultralife’s characterization is correct—is it possible to provide defective pricing data on a “non-bid” contract? Although the answers are unknown, at the very least, this settlement should serve as a warning to those contractors who enter into such “exigent” contracts with government agencies.