Photo of Dalal Hasan

On June 1, 2015, the Office of Federal Procurement Policy (“OFPP”) released a Memorandum for Chief Acquisition Officers and Senior Procurement Executives to provide guidance on “Effective Use of Reverse Auctions.”[1] Reverse auctions are a web-based procurement tool that allows sellers to compete with successively lower bids to obtain awards for products and services. Although the use of reverse auctions by contracting agencies has been steadily increasing (nearly tripling from 7,193 actions to 19,688 between FY 2008 and FY 2012, reaching a value of $828 million), the tool is not currently addressed under the Federal Acquisition Regulations (“FAR”). A December 2013 Government Accountability Office (“GAO”) report highlighted the growing trend in use of this tool and called upon OFPP to issue comprehensive government-wide guidance.[2] In response, OFPP’s June 1, 2015 memorandum provided a set of “reminders” to help contracting officers maximize the potential benefits of this tool.

This article briefly explains how reverse auctions work, identifies trends in use, and summarizes highlights of OFPP’s recommendations that may impact future use of reverse auctions.

Continue Reading June 1, 2015 OFPP Memorandum “Effective Use of Reverse Auctions”

On Thursday, June 14 at 1 p.m. (Eastern time), Crowell & Moring government contracts and false claims act attorneys Bob Rhoad and Dalal Hasan will be conducting a webinar entitled “False Claims Act: Key Provisions and Current Trends in Compliance and Enforcement” on behalf of L2 Federal Resources. During this 90-minute webinar, Bob and Dalal will provide an overview of key FCA provisions to help you understand the risks, with practical examples and guidance that will equip you to identify and avoid potential FCA violations. They will also cover reporting obligations related to potential violation of the FCA and other statutory provisions under the Mandatory Disclosure Rules of the Federal Acquisition Regulations, and discussion on recent trends in compliance and enforcement.

Details about the webinar and on-line registration are available at http://l2federalresources.com/2012/false-claims-act-key-provisions-and-current-trends-in-compliance-and-enforcement/.

Please note that L2 Federal Resources requires a registration fee for its webinars.

Last week, the U.S. District Court for the Eastern District of Virginia in U.S. ex rel. Bunk v. Birkart Globistics GmbH & Co., et al. (a qui tam case in which the government did not intervene) declined to impose statutory penalties on the jury’s finding of 9,136 false claims (invoices submitted by defendants under a fraudulently-induced contract) that would have amounted to between $50.2 million and $100.4 million. Judge Anthony J. Trenga held that, in this case, where the relator failed to establish that the government suffered any economic harm or damages, imposing penalties of that magnitude would violate the Eighth Amendment’s Excessive Fines Clause. It also held that it lacked discretion under the FCA to unilaterally reduce the penalties or fashion some other civil penalty that would be within constitutional limits and was therefore compelled to impose no penalties notwithstanding the finding of FCA liability. See United States ex rel. Bunk v. Birkart Globistics GmbH & Co., et al., No. 1:02-cv-1168 (E.D. Va. Feb. 14, 2012).

The legal basis on which a court may fashion its own civil penalty when an otherwise binding, nondiscretionary statutory penalty or fine is deemed unconstitutional, is an issue that has not been specifically dealt with by the Supreme Court or the Fourth Circuit. Even in cases where courts have held that the FCA civil penalty violates the Eighth Amendment when applied to the facts and fashioned their own constitutional penalty, there has been little discussion concerning the legal basis on which a court may do so.

Given this lack of precedent, Judge Trenga went on to provide three alternative rulings in the event that the Fourth Circuit determines that the court does have authority to impose a civil penalty other than the mandatory, but constitutionally excessive, civil penalty prescribed by statute. He considered that an alternative reasonable interpretation of the FCA would be that a civil penalty should be applied for each factually false statement, as opposed to each claim paid as a result of that false statement (despite also recognizing that Fourth Circuit precedent is to do the latter). The court concluded that one civil penalty could be imposed (since there was only one false statement), between the statutory range of $5,500 and $11,000, and that under such a construction, it would have assessed an award of $11,000.

Next, the court considered whether a multiplier of the financial gain to defendants of $150,000 in profits could serve as a touchstone for determination of proportionality that would establish a constitutional limit. Using that figure, “and the multiples identified by the Supreme Court as representing the outer limits of propriety under the Due Process clause for assessing punitive damages,” (without citing any cases) the court concluded that a total penalty of $1.5 million would reflect, based on the facts of the case, the outer limit of a constitutionally permissible fine under the Eighth Amendment. In doing so, the court rejected the Plaintiff’s and the government’s position that the outer limit of a constitutionally permissible fine would have been $24 million, noting that “the $24 million civil penalty does not result from any principled application of the FCA, as it is not a multiple of 9,136 and any number within the statutory range of $5,500 to $11,000. Rather, the proposed penalty appears to be based on nothing more than what the Plaintiffs think is an appropriate number under the circumstances of the case.”

Finally, the court considered what the civil penalty would be if it were found to be appropriate for the court to impose a civil penalty based on the facts and circumstances of the case (including the defendants’ conduct, the gain obtained, the need to deter others and sanction the defendants, and the public interest in protecting the integrity of the public procurement process). Under that measure, the court would have awarded $500,000, which it described as corresponding to three times the defendants’ presumed profit ($150,000) on the services provided under the line item in question and also the defendants’ approximate profit on the entire contract over three years (without stating that amount).

The qui tam provisions of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., allow private individuals to file suit on behalf of the United States when they have evidence or information that false claims or false statements related to false claims were made to the government. When the FCA was originally enacted in 1863, qui tam complaints were public documents, which meant that a complaint’s allegations of fraud were open to members of the public and were not hidden from the named defendant. In 1986, however, Congress amended the FCA by adding new seal provisions to the statute. These provisions require every qui tam complaint to be filed under seal for 60 days to give the government time to investigate the complaint’s allegations and to decide whether it wants to intervene in the action. While the initial sealing period is only 60 days, cases typically remain under seal for a year or more while the government investigates.

In ACLU v. Holder, (4th Cir. Mar. 28, 2011), the American Civil Liberties Union (“ACLU”), joined by OMB Watch and the Government Accountability Project, filed suit challenging the constitutionality of the seal provisions. The ACLU argued that the seal provisions violate the First Amendment by denying the public’s right of access to judicial proceedings and by gagging qui tam relators from speaking about their qui tam complaints. The ACLU also argued that the seal provisions violate the Constitution’s separation of powers clause by infringing on the authority of lower federal courts to decide on a case-by-case basis whether a particular qui tam complaint should be unsealed.

In a split 2-1 decision, the Fourth Circuit upheld the constitutionality of the seal provisions and affirmed the dismissal of the ACLU’s case. Assuming, without deciding, that the First Amendment right of access extends to a qui tam complaint and docket sheet, the court held that denial of access did not violate the First Amendment because the FCA’s seal provisions are narrowly tailored to serve a compelling government interest of protecting the integrity of ongoing fraud investigations. The court cited three reasons for finding that the provisions were narrowly tailored: (1) Congress balanced the government’s investigatory needs against the need for public access to court documents by crafting a detailed and limited 60-day process for initiating and pursuing a qui tam complaint under the FCA; (2) the seal provisions mandate judicial review at the end of the 60-day period, requiring the government to demonstrate “good cause” to a federal court in order to extend the seal; and (3) the seal provisions limit the relator only from publicly discussing the filing of the qui tam complaint, not the existence of the fraud.

The court also held that the ACLU and other groups lacked standing to assert the claim that the FCA’s gag order provision preventing qui tam relators from speaking about their qui tam complaints violated the First Amendment. The court rejected the ACLU’s attempt to establish First Amendment standing as persons who are “‘willing listeners’ to a willing speaker who, but for the restriction, would convey information,” because the ACLU failed to identify any particular qui tam relator who, but for the seal provisions, was a willing speaker who desired to speak with them.

The court also rejected the argument that the seal provisions violate the separation of powers under the Constitution, holding that the FCA seal provisions are “a proper subject of congressional legislation and do not intrude on ‘the zone of judicial self-administration to such a degree as to prevent the judiciary from accomplishing its constitutionally assigned functions.’”

Judge Gregory wrote a dissenting opinion in which he observed that the result of upholding the seal provisions meant that “we may never know what wasteful spending and fraud against the public fisc persists because of government delay, inaction, or under enforcement . . . .” In his dissent, Judge Gregory concluded that the sealing requirement is facially unconstitutional because “it automatically and categorically seals all FCA complaints for at least 60 days,” and the Government failed to justify its First Amendment infringement with compelling interests and narrow tailoring. He noted that “the freedom to speak about FCA complaints bolsters the public role of relators and pressures the government to rigorously enforce the FCA—or to expeditiously decline to intervene.

It remains to be seen whether the case will be appealed to the Supreme Court or reconsidered by the Fourth Circuit en banc.