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FCA Qui Notes
October 31, 2018

Relators From Beyond the Breakroom: False Claims Act Complaints From Unlikely Places

Qui Notes: Unlocking the False Claims Act

The term "relator" most often conjures up images of disgruntled current or former employees filing complaints against former employers. But these are not the only potential relators who may be lurking. Since today is Halloween, it seems appropriate to take a moment to consider other frightening False Claims Act vulnerabilities you may have, and situations that may not be as safe as they seem.

One eerie possibility is a relator not from within your own ranks, but from a competitor. Competitors in a GAO or Court of Federal Claims (COFC) bid protest often learn information regarding the awardee's proposal, contract award, or business status. This information could provide the basis for a False Claims Act complaint. Prospective defendants may overlook this possibility because of the public disclosure bar, but be wary. Remember that the bar is no longer jurisdictional after the Affordable Care Act amended the FCA in 2010. Remember also that bid protests litigated under seal may not even qualify as public disclosures. Take for example the spooky tale of United States ex rel. American Systems Consulting, Inc. v. Man Tech Advanced Systems International Inc., a qui tam complaint based on information learned during a sealed GAO protest, which alleged that the defendant's proposal assured the presence of a specific project manager despite knowing that the project manager would not be available for the contract award. 2012 WL 12929898 (S.D. Ohio March 12, 2012). The relator had discovered this fact during the course of the bid protest, but because the protest was sealed the court held that no public disclosure had occurred. Id. at *7. The defendant ultimately prevailed on summary judgment, but not until another two years of discovery and litigation—a scary prospect for any government contractor.

Another atypical way to end up defending against FCA claims is by falling through the trap doors hidden in litigation under the Contract Disputes Act (CDA). The CDA requires contractors certify that a claim submitted to the government is "made in good faith," and is accurate and complete. If the claim is not supported, or based on misrepresentation or fraud, the government can bring counter-claims under the FCA and the CDA's fraud provision. This can result in a situation where the contractor is the plaintiff that sued the government for denial of a CDA claim, and ends up paying significant penalties for false certification. This is precisely what happened in Daewoo Engineering & Construction Co. v. United States, where the contractor submitted a certified CDA claim for $64 million seeking damages related to performance on a construction contract. 73 Fed. Cl. 547 (2006), aff'd 557 F.3d 1332 (Fed. Cir. 2009). After the government denied the claim, Daewoo filed a complaint at the COFC, and the government subsequently filed a counter-claim under the CDA and the FCA, alleging that the CDA was itself fraudulent. The COFC agreed, and found Daweoo liable for $50 million in damages under the CDA, and $10,000 in damages under the FCA—a staggering reversal of fortune. Id. at 585-86.

These are only two examples of FCA liability arising in unexpected places, but they are not the only ones. Relators can also be found in the ranks of ostensibly friendly subcontracting personnel, or in the form of relator firms that specialize in a particular government contractor's industry. Contractors should thus maintain FCA vigilance in the face of both tricks and treats.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.