By: Edward T. DeLisle & Maria L. Panichelli

We’ve warned you before: the False Claims Act should be taken seriously. In recent years, the government has been increasingly willing to wield the provisions of the FCA as weapons, zealously punishing offending federal contractors.

A recent opinion United States ex rel. Hooper v. Lockheed Martin Corp., No. 11-55278 (9th. Cir. 2012) reminds us once again that the government almost seems to be searching for ways expand the FCA’s application, finding new categories of conduct that are covered by, and punishable pursuant to, the Act.

In Hooper, the Court found that the practice known as “buying in” – i.e. deliberate underbidding of a job – was covered under the FCA. Hooper, a former employee of Lockheed Martin, brought a “qui tam” action against Lockheed, alleging that the company deliberately underbid at least one Air Force contract. The contract was cost-reimbursable with an award fee. As one might imagine, intentionally underbidding this type of contract could be quite lucrative. In apparent recognition of this fact, Hooper alleged that Lockheed knowingly underestimated its costs when submitting its bid.

In response, Lockheed moved to dismiss. The company argued that a false estimate could not create liability under the False Claims Act. The Court disagreed. After noting that both the First and Fourth Circuits had previously found the FCA applicable to similar “underbidding” situations, the Ninth Circuit stated as follows: “we conclude that false estimates, defined to include fraudulent underbidding in which the bid is not what the defendant actually intends to charge, can be a source of liability under the FCA, assuming that the other elements of an FCA claim are met.”

In the wake of this decision, all contractors would be wise to take every possible precaution to avoid underbidding – intentional or otherwise.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.