Welcome to the second edition of Legal Landscape, a series we have developed with Onvia’s blog to provide government contractors with a quick, but thorough, summary of important legal developments and regulations in government contracting, as well as a plain-English explanation of how those developments may affect contractors at all levels of government. In this issue, we discuss recent compliance and enforcement trends in federal as well as state and local government contracting. State and local contractors should keep in mind that state and local agencies often look to changes in federal regulations as a guideline; changes recently made in the federal arena are likely to trickle down to state and local governments soon.
On January 8, 2015 the U.S. Court of Appeals for the Fourth Circuit issued a decision in United States v. Triple Canopy, which broadened the reach of the False Claims Act (FCA) by embracing the theory of implied certification. While it is too early to speculate about the impact of the decision, it certainly could result in a rise in whistle blower and government initiated actions under the FCA.
The case stems from a security services contract at Al Asad Airbase in Iraq, which was awarded to Triple Canopy in 2009. As a part of the contract, Triple Canopy was required to provide security personnel who possessed specific firearms training and who were able to pass a U.S. Army qualifications course with a minimum score. Scorecards indicating that personnel passed the qualifications course were to be maintained in each employee’s personnel file.
Triple Canopy hired 332 Ugandan guards to work at the Airbase. The guards’ personnel files indicated that they met the training requirements; however, once they arrived on site and were retested, it was discovered that they were unable to properly perform. To overcome this, Triple Canopy falsified scorecard sheets indicating that its personnel were, in fact, qualified.
For the 12 month contract period Triple Canopy presented monthly invoices to the government and received payments totaling over 4 million dollars. Sometime later, a former employee filed a qui tam action in the Eastern District of Virginia alleging that the FCA had been violated. The government intervened alleging that Triple Canopy knowingly presented false claims to the government. Specifically, the government alleged “that Triple Canopy knew the guards did not satisfy [the contract’s] marksmanship requirement but nonetheless billed the government the full price for each and every one of its unqualified guards and falsified documents in its files to show that the unqualified guards each qualified as a Marksman on the U.S. Army Qualification course.”
Triple Canopy filed a motion to dismiss. The basis for this motion was the government’s failure to sufficiently plead that Triple Canopy submitted a demand for payment that contained a false statement. The motion went on to state that the government failed to prove that a false record was created by Triple Canopy, which the government relied upon in paying Triple Canopy. The Court agreed. In its opinion, the Court asserted that the government did not plead “that Triple Canopy submitted a demand for payment that contained an objectively false statement.” In other words, because the actual claim for payment did not contain a false statement, there was no violation of the FCA. Further, the Court held that the “Government … failed to allege that the [Contracting Officer’s Representative] ever reviewed the scorecards,” demonstrating that the government did not rely upon a false record because it did not examine the scorecards before it made payment. The United States (along with the former employee) appealed to the Fourth Circuit.
On appeal the Fourth Circuit reversed the District Court’s ruling. The Court held that the “Government pleads a false statement when it alleges that the contractor, with the requisite scienter, made a request for payment under a contract and withheld information about its noncompliance with material contractual requirements. The pertinent inquiry is whether, through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment.” The Fourth Circuit further found that, although Triple Canopy had not submitted certifications that were false on their face, the government plead sufficient evidence to sustain a FCA claim under a theory of implied certification.
In making this finding, the Court acknowledged the broad purpose of the FCA by stating that “claims can be false when a party impliedly certifies compliance with a material contractual condition [which] gives effect to Congress’ expressly stated purpose that the FCA should reach all fraudulent attempts to cause the Government to pay out sums of money or to deliver property or service.” Here, the material contractual condition was the guards’ qualifications, which Triple Canopy falsified. As the Court explained “common sense strongly suggests that the government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight….[and further] if Triple Canopy believed that the marksmanship requirement was immaterial to the government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.” Essentially, the Fourth Circuit found that the claim itself did not have to be false as long as the underlying information that formed the basis of the claim was material and false.
Prior to this ruling, it was difficult to bring a claim under the FCA under circumstances such as these because it was generally only permissible where there was fraud found in an actual certification for payment. Based upon this decision, a FCA claim can be sustained as long as the material upon which payment is based is false. This is yet another example of the expansive nature of the FCA. If you are a government contractor beware of its implications and if you have any questions, call a legal professional.
Edward T. DeLisle is Co-Chair of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.
Amy M. Kirby is an Associate in the firm’s Federal Contracting Practice Group and focuses her practice on government construction litigation. Amy’s practice includes a wide variety of federal construction matters.
There is no question that documentation is an important part in the resolution of any construction dispute. Particularly contemporaneous documents – documents that are created at the time that events occur. Quality control reports, daily logs, and timely letters all fall into the “contemporaneous” category. Another type, however, has an instantaneous characteristic that not only makes it contemporaneous, but so current as to be potentially dangerous – e-mail. This form of documentation cannot only be useful to record events virtually as soon as they occur, but it also has become a vehicle for the expression of emotions without the benefit of reflection.
Every contractor, for example, has had the occasion to be angered by something that another contractor, vendor, or owner has done during the performance of a construction project. If the subject of that anger, or disagreement, could lead to a request for additional compensation, there is often a knee-jerk reaction to put something in writing. Many of us have hurriedly drafted a letter and then, feeling better for having written it, crumpled the paper and tossed it into the nearest wastebasket. It has a therapeutic value and no harm is done. In our Information Age, however, with the ability to compose e-mail messages on our computers, iPads, and smartphones, the opportunity for reflection is gone as soon as we hit the “Send” button.
As an attorney, this often creates a serious problem when those messages are sent by a prime contractor to a sub, or by a sub to the prime. What both parties seem to fail to recognize is that these instantaneously transmitted messages not only record past events and express current thoughts, they may also have a dramatic effect on the future outcome of a dispute. What happens when the prime accuses the sub of poor workmanship and later seeks to blame the owner for providing a defective specification that actually caused the problem? That e-mail message, sent hastily to the subcontractor before all the facts were known, may become a useful document to the owner during litigation. The question, on cross-examination, will be “Isn’t is true that you believed that the problem was poor workmanship by your subcontractor, and not any defect in the specifications?” If the problem really is a defective specification, the ill-advised e-mail message has provided a potential defense to the owner and has introduced uncertainty into the dispute where none may have otherwise existed.
The lesson in all of this is that all parties should think about the possible consequences of the emotions and feelings they are expressing. There is no question that the facts, such as the working conditions, equipment, and manpower at the site must be recorded promptly and accurately. If the accurate recording of events affects the outcome of a dispute, it probably means that justice has been done. Expressions of emotions and opinions that are not well thought-out are in a different category, however and, when conveyed in e-mail messages, they are an unwelcome byproduct of the Information Age. E-mail messages, and all forms of Electronically Stored Information (“ESI”), are just as discoverable by the other side as paper documents. My advice is to be careful and think about the possible future impact of writing, and instantaneously transmitting, things that do not need to be said. Not every form of contemporaneous documentation is a good idea.
Michael H. Payne is the Chairman of the firm’s Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.