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The Department of Justice has announced a $14 million False Claims Act (FCA) settlement with Coloplast, a medical product manufacturer, after Coloplast self-disclosed violations of the Trade Agreements Act (TAA) and Price Reduction Clause (PRC) while under contract with the Department of Veterans Affairs (VA).  The TAA requires contractors to furnish end products that are U.S.-made or “substantially transformed” in designated countries.  Coloplast disclosed that it misapplied the substantial-transformation standard, causing Coloplast to report incorrect countries of origin for products and to improperly retain certain products on contract after manufacturing moved to non-designated countries.  Coloplast also disclosed that it overbilled the Government by failing to provide the VA with discounts pursuant to the terms of the PRC, which normally requires tracking discounts offered to designated commercial customers and offering corresponding downward price adjustments to VA customers. 

Clearly, Coloplast did not dispute that it had violated the TAA and PRC clauses in its contract with the VA.  Unclear, however, are (1) to which government authorities Coloplast directed its self-disclosures and (2) whether Coloplast made those disclosures pursuant to the Mandatory Disclosure Rule applicable to government contractors.  See FAR 52.203-13(b)(3).  Also unclear is whether Coloplast received any credit in the settlement for having made these disclosures and for any subsequent cooperation it provided, pursuant a DOJ policy designed to encourage and reward self-disclosures and cooperation in FCA cases.  The policy, announced in 2019 and codified in the Justice Manual at § 4-4.112, provides for maximum credit in the form of a single-damages cap where companies, among other things, timely self-disclose FCA violations, fully cooperate with any ensuing investigation, and take remedial measures designed to prevent and detect similar wrongdoing in the future. 

Key Takeaways:

  1. To avoid draconian sanctions under the False Claims Act, contractors subject to the TAA and PRCs should establish robust compliance programs to ensure TAA and PRC monitoring throughout the term of any contracts that include those requirements.  Retroactive compliance reviews or audits are important for detecting potential issues, but may not be sufficient to avoid FCA liability even when contractors self-disclose potentially noncompliant conduct.
  2. DOJ’s application of its False Claims Act disclosure and cooperation policy remains murky at best, leaving in question whether government contractors and others can rest assured that they will receive real “credit” under the policy when its disclosure, cooperation and remediation requirements are met.
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Photo of Stephen M. Byers Stephen M. Byers

Stephen M. Byers is a partner in the firm’s White Collar & Regulatory Enforcement Group and serves on the group’s steering committee. He is also a member of the firm’s Government Contracts Group and E-Discovery & Information Management Group. Mr. Byers’s practice involves…

Stephen M. Byers is a partner in the firm’s White Collar & Regulatory Enforcement Group and serves on the group’s steering committee. He is also a member of the firm’s Government Contracts Group and E-Discovery & Information Management Group. Mr. Byers’s practice involves counseling and representation of corporate and individual clients in all phases of white collar criminal and related civil matters, including: internal corporate investigations; federal grand jury, inspector general, civil enforcement and congressional investigations; and trials and appeals.

Mr. Byers’s practice focuses on matters involving procurement fraud, health care fraud and abuse, trade secrets theft, foreign bribery, computer crimes and cybersecurity, and antitrust conspiracies. He has extensive experience with the federal False Claims Act and qui tam litigation, the Foreign Corrupt Practices Act, the Economic Espionage Act, and the Computer Fraud and Abuse Act. In addition to defense of government investigations and prosecutions, Mr. Byers has represented corporate victims of trade secrets theft, cybercrime, and other offenses. For example, he represented a Fortune 100 U.S. company in parallel civil and criminal proceedings that resulted in a $275 million criminal restitution order against a foreign competitor upon its conviction for trade secrets theft.

Photo of Adelicia R. Cliffe Adelicia R. Cliffe

Adelicia Cliffe is a partner in the Washington, D.C. office, a member of the Steering Committee for the firm’s Government Contracts Group, and a member of the International Trade Group. Addie is also co-chair of the firm’s National Security practice. Addie has been…

Adelicia Cliffe is a partner in the Washington, D.C. office, a member of the Steering Committee for the firm’s Government Contracts Group, and a member of the International Trade Group. Addie is also co-chair of the firm’s National Security practice. Addie has been named as a nationally recognized practitioner in the government contracts field by Chambers USA.

Photo of Brian Tully McLaughlin Brian Tully McLaughlin

Brian Tully McLaughlin is a partner in the Government Contracts Group in Washington, D.C. and co-chair of the False Claims Act Practice. Tully’s practice focuses on False Claims Act investigations and litigation, particularly trial and appellate work, as well as litigation of a…

Brian Tully McLaughlin is a partner in the Government Contracts Group in Washington, D.C. and co-chair of the False Claims Act Practice. Tully’s practice focuses on False Claims Act investigations and litigation, particularly trial and appellate work, as well as litigation of a variety of complex claims, disputes, and recovery matters. Tully’s False Claims Act experience spans procurement fraud, healthcare fraud, defense industry fraud, and more. He conducts internal investigations and represents clients in government investigations who are facing fraud or False Claims Act allegations. Tully has successfully litigated False Claims Act cases through trial and appeal, both those brought by whistleblowers / qui tam relators and the Department of Justice alike. He also focuses on affirmative claims recovery matters, analyzing potential claims and changes, counseling clients, and representing government contractors, including subcontractors, in claims and disputes proceedings before administrative boards of contract appeals and the Court of Federal Claims, as well as in international arbitration. His claims recovery experience includes unprecedented damages and fee awards. Tully has appeared and tried cases before judges and juries in federal district courts, state courts, and administrative boards of contract appeals, and he has argued successful appeals before the D.C. Circuit, the Federal Circuit, and the Fourth and Seventh Circuits.

Photo of Payal Nanavati Payal Nanavati

Payal Nanavati is an associate in the firm’s Washington, D.C. office, where she practices in the Health Care and Government Contracts groups. Payal’s government contracts practice focuses on defending companies under the False Claims Act (FCA), litigation before the Armed Services Board of…

Payal Nanavati is an associate in the firm’s Washington, D.C. office, where she practices in the Health Care and Government Contracts groups. Payal’s government contracts practice focuses on defending companies under the False Claims Act (FCA), litigation before the Armed Services Board of Contract Appeals (ASBCA), and bid protests before the Government Accountability Office (GAO). Her health care practice includes working with providers and plans seeking to comply with laws and regulations applicable to digital health initiatives, fraud and abuse, and mental health parity.