Federal Procurement Policy

The National Defense Authorization Act (“NDAA”) for Fiscal Year 2018 includes enhanced post-award debriefing requirements for the Department of Defense (“DoD”). This change is likely a response to the Office of Federal Procurement Policy’s (“OFPP”) January 5, 2017 memorandum. The memorandum debunked certain misconceptions about the debriefing process and encouraged agencies to adopt best practices and maximize the value of debriefings. One such myth that the OFPP’s memorandum debunked was that debriefings always lead to protests. The memorandum advocated for more transparency in the debriefing process, explaining that, in fact, an effective debriefing process can greatly reduce the frequency of protests. Continue Reading Good News for Department of Defense Contractors: Enhanced Post-Award Debriefing Requirements are on Their Way!

This past July, we told you about an important bill known as the Stop Unworthy Spending Act (“SUSPEND Act”). That bill, which was introduced by House of Representatives oversight committee chairman Darrell Issa, aimed to dramatically overhaul the suspension and debarment (“S&D”) procedures applicable to federal contractors. Currently, the suspension and debarment of contractors is handled by each individual contracting agency, by its respective S&D office. But under Issa’s SUSPEND Act, these forty-one individual offices would be consolidated into one, centralized “Board of Civilian Suspension and Debarment.” That board would be overseen by the General Services Administration. In addition to consolidating the forty-one civilian agency S&D offices, the Act aimed to standardize agencies’ S&D policies, and increase transparency.

On October 29, 2013, the House of Representatives’ Oversight Committee passed an amended version of the SUSPEND Act. According to an October 28, 2013 press release, the amended version of the bill “reflects extensive stakeholder and academic community feedback,” and differs from the draft version of the bill circulated in February in several key respects. Among the additions to the new version of the bill is a timeliness rule, which requires the new, consolidated “Board of Civilian Suspension and Debarment” to consider cases within thirty days of referral. The board would also be required to render a final decision on those cases within six months of referral. S&D procedures relating to wartime operations and other time-sensitive matters would be further expedited. The new bill would also require agencies to coordinate their S&D efforts; it encourages the agencies to utilize a range of fraud remedies, including civil and criminal enforcement, with an emphasis on the timely recovery of funds.

Pursuant to the new bill, over forty smaller executive agency S&D offices would be centralized under the control of the Board of Civilian Suspension and Debarment. In contrast, larger agencies and military departments would be permitted to operate their own independent S&D offices, as long as they can demonstrate that they are able to run an effective S&D program. Overall, proponents say, the SUSPEND Act will improve the consistency and transparency of governmental S&D programs by:

  • Combining the separate S&D regulations governing contracts and grants into a single, comprehensive regulation;
  • Mandating a single government-wide case management system to track cases and make publicly available all final resolutions of S&D cases;
  • Enhancing oversight to ensure the accuracy and completeness of a government-wide database of firms that should not receive awards;
  • Speeding up referrals for S&D, including the identification of contractors and grantees that repeatedly fail to perform; and
  • Ensuring accused parties have the opportunity to be heard prior to any adverse action being taken against them by requiring “show cause” letters.

In our view, the new S&D framework proposed in the SUSPEND Act is a considerable improvement over the current S&D system, if only because of the shortened governmental response deadlines. Under the current system, government contractors who were unfairly suspended or proposed for debarment are often forced to wait months before the matter is resolved. Hopefully, this bill could remedy that problem. We will keep you posted on the progress of the bill.

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. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

On August 15, 2013, the SBA put into effect a long-awaited Final Rule (Federal Register Volume 78, Number 136 (Tuesday, July 16, 2013)) designed to help small business subcontractors. The Final Rule, which implements policies set forth in the Small Business Jobs Act of 2010, provides for several very important changes to small business contracting.

First, the rule will impact the ways large business contractor-offerors must utilize small business subcontractors who help during the proposal stage. Small businesses frequently complain that they spend considerable time, effort, and resources assisting large businesses in preparing bids, quotes and proposals, only to be left without any subcontract when the large business actually secures an award of the contract. To combat this problem, the Final Rule requires that large business contractor-offerors (those in line for an award over $650,000, or, in the context of a contract for the construction of a public facility, an award over $1,500,000) “represent to the contracting officer that it will make a good faith effort to acquire articles, equipment, supplies, services, or materials, or obtain the performance of construction work from small business concerns that it used in preparing its bid or proposal, in the same scope, amount, and quality used in preparing and submitting the bid or proposal.” Pursuant to the rule, an offeror “uses” a particular small business in its bid or proposal if:

  • The large business referenced the small business as a subcontractor in its bid or proposal;
  • The large business referenced the small business as a subcontractor in its small business subcontracting plan;
  • The large business has a subcontract or “agreement in principle” to subcontract with the small business to perform a portion of the contract work;
  • The small business drafted any portion of the bid or proposal; or
  • The large business used the small business’s cost/pricing information or technical expertise in preparing the bid or proposal.

If the large business ultimately fails to use the small business as a subcontractor it must provide the Contracting Officer with a written explanation as to why. Under the rule, the CO must consider these issues when rating the large business prime’s overall performance. Moreover, in the most extreme cases, the CO is required to report a large business’ non-compliance to the Federal Awardees Performance and Integrity Information System (FAPISS). In short, large business offerors will no longer be able to rely on the efforts of small business subcontractors during the proposal stage without conferring some of the benefits of award on those subcontractors.

Second, the rule provides that large business prime contractors are responsible for ensuring that small business concerns are given the “maximum practicable opportunity” to participate in the performance of the work. The prime contractors must conduct market research and use “all reasonable means” to identify small business subcontractors and suppliers. Contractors on larger awards also have additional administrative and substantive responsibilities. For example, they must give pre-award written notice to unsuccessful small business subcontractors. Lastly, the primes cannot prohibit subcontractors from discussing any material matter, including payment from the prime, directly with the contracting officer.

Third, the rule requires that prime contractors must notify the Contracting Officer, in writing, when it is more than 90 days behind paying its small business subcontractors. Primes must also notify the CO if they pay the small business contractor a reduced price, lower than that agreed to in the subcontract. A contractor will be deemed to have a history of slow or reduced payments if it self-reports 3 times within a one-year period. The contracting officer is required to evaluate these payment factors when ultimately rating the contractor’s overall performance.

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.

Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

Suspension and debarment procedures have been a hot topic in recent years, and it appears that the issue will remain a focus of congressional debate for the rest of this year as well. On June 12, 2013, Congress heard testimony on the state of the federal government’s suspension and debarment (S&D) system. The testimony was meant to serve as a congressional follow up to two troublesome GAO reports, which emphasized the many problems with the current S&D system.

John Neumann, the GAO’s Director of Acquisition and Sourcing Management, offered testimony at this June 12th hearing. He spoke about the GAO’s recent efforts to alleviate the systematic issues identified in the GAO reports. Neumann’s testimony indicated that he believed the suspension and debarment system was, in fact, improving, and that no major changes to the system were necessary. However, his opinion is far from universal. Most people agree that the S&D system is inescapably flawed, and in need of a dramatic overhaul.

For example, Scott Amey, General Counsel for the Project On Government Oversight (a group that works “to achieve a more accountable federal government”), testified that many agencies “still are not utilizing the suspension or debarment tool” effectively. Amey went on to testify that “history proves” that the current system does not force agencies to employ “top-notch contractors that are not involved in illegal or questionable activities.” In other words, most agencies continue to look the other way, giving business to contractors the agencies know are involved in misconduct, rather than initiating suspension and debarment procedures. Amey cited the Nuclear Regulatory Commission and Social Security Administration as agencies that have “zero suspensions, proposed debarments, debarments, and administrative agreements.” He further identified the Departments of Commerce, Health and Human Services, and Labor as having only a handful of suspensions and debarments. In short, Amey indicated that he does not believe that the current system encourages agencies to diligently prosecute and punish “bad” contractors.

Amey did, however, suggest a possible solution to this systematic underuse, or misuse, of suspension and debarment procedures: the Stop Unworthy Spending (or “SUSPEND”) Act. The SUSPEND Act, which was introduced by House of Representatives oversight committee chairman Darrell Issa several months ago could dramatically overhaul the S&D procedures applicable to federal contractors. Currently, suspension and debarment of contractors is handled by each individual contracting agency, by its respective suspension and debarments office. But under Issa’s SUSPEND Act, these forty-one individual offices would be consolidated into the “Board of Civilian Suspension and Debarment,” which would be overseen by the General Services Administration. In addition to consolidating the forty-one civilian agency S&D offices into one centralized board, the Act would standardize agencies’ S&D policies, and increase transparency.

Proponents of the SUSPEND Act point out that it will result in consistent, uniform application of S&D procedures across various agencies, and thereby put a stop to the underutilization of the S&D process by individual agencies. It will also prevent these agencies from making mistakes with respect to reporting requirements. In Issa’s view, the SUSPEND Act is necessary to combat the award of government contracts to those he described as “fraudsters, criminals, or tax cheats.” However, opponents say that the proposed changes could be detrimental to both contractors and agencies.

Critics point out that a centralized Board of Civilian Suspension and Debarment could result in a bureaucratic behemoth, which would ultimately prove slower for contractors, and result in a more formal process that requires participation of legal counsel. Moreover, the restructuring could deprive agencies of their leverage in negotiating concessions from contractors during debarment negotiations. It might also lead to duplication and inefficiency as the agencies try to coordinate their suspension and debarment activities with a new government entity.

Pro or con, the SUSPEND Act has the potential to become very important in upcoming months, and we will keep you updated on the progress of the bill. Whether or not the bill ultimately passes, it is important to also keep in mind what it signifies. This bill, and the congressional attention paid to the S&D program in general, demonstrate the government’s increased vigilance with respect to contractor fraud. The government’s focus remains on increasing the prosecution of dishonest or fraudulent contractors, and on perfecting S&D procedures used to punish those contractors. As this process continues, it is important for contractors to be aware of the dangers, and consult with legal counsel to avoid any inadvertent infractions.

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. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

Our last blog article focused on the ability of an SDVOSB to control his company remotely thanks to the advancements of technology. Well, technology can be both a blessing and a curse. It can allow you to work from pretty much anywhere, but, as we all know, there are certain places where you should simply avoid using the technology available to you, such as when you are behind the wheel. The hazards of texting while driving has become a major problem and, as a result, it’s been rendered illegal in many states. Based upon recent changes to the FAR, now the federal government is getting into the act.

Pursuant to FAR Subpart 23.11 (incorporated into every government contract through clause 52.223-18) a government contractor should adopt and enforce a policy banning employees from texting whenever an employee is: (1) driving a vehicle owned or rented by the company; (2) driving a vehicle owned by the government; or (3) driving a privately owned vehicle when performing any work on behalf of the government. Moreover, contractors are required to “flow down” this anti-texting clause to all of its subcontractors, if the value of the subcontract exceeds the “micro-purchase threshold” (currently $3,000).

More importantly, 52.223-18 requires federal contractors to “conduct initiatives” to educate employees about the dangers of texting while driving; these initiatives should be “commensurate with the size of the business.” If you are a large government contractor, this likely means that the government will expect some sort of training in addition to a written policy or employee handout covering this topic. If you are conducting periodic ethics training (and you should be), you can likely incorporate any necessary training on anti-texting as part of those sessions. If you do not conduct periodic ethics, and other government contracting, training to refresh yourself regarding what the government requires of its contractors, you should certainly consider doing so. If you have any questions, please feel free to contact us.

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.

We’ve warned you before against relying on informal, or oral, directives from a Contracting Officer; get it in writing!   A recent case before the Armed Services Board of Contract Appeals reminds us that contractors also need to be wary about who from the government is giving those directives.

In EEC International, ASBCA No. 55781 (Dec. 28, 2012), the contractor asserted claims against the government, alleging that constructive changes to the contract resulted in higher performance costs.  Specifically, the contractor alleged that the government’s construction representative, as well as the contracting officer’s representative, interfered with its means and methods and directed the contractor to make many changes to its scope of work.  According to the contractor, the construction representative and contracting officer representative also constructively accelerated its performance.

The Board did not address the merits or credibility of the contractor’s claims.  It instead concluded that even if events occurred as the contractor claimed, it was barred from entitlement because neither the construction representative nor the contracting officer’s representative was authorized to modify the contact.  The Board concluded that only the contracting officer had such authority, and the contractor had not alleged that the contracting officer directed it to take the actions at issue.  Although the contractor argued that the acts of the construction representative and contracting officers representative were implicitly ratified by a higher authority who had knowledge of the facts, as well as the authority to bind the government, the Board rejected this argument.

The hard lesson: taking direction from someone other than the contracting officer is done at a contractor’s peril.  We certainly feel that the Board’s decision was harsh here.  Contracting officers are most often not those with whom the contractor has regular communications and there are situations where directives from others may be binding.  However, as budgets shrink and possible sequestration looms, anticipate that agencies will rely more and more heavily on defenses such as this.  We’re already seeing it happen.  So contractors should avoid taking direction from anyone but the individual explicitly vested with authority to bind the government.  If you find yourself in a difficult position, where you feel compelled to proceed without proper written authorization, contact an experienced legal professional for assistance.

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.

By: Edward T. DeLisle

We are frequently asked whether attorneys fees are recoverable as part of the federal claims procedure. The answer is sometimes. A case just decided by the Court of Appeals for the Federal Circuit assists in explaining when such a recovery is possible.

In Tip Top Construction v. Donahue, the United States Postal Service required a contractor to perform additional work to complete an air conditioning repair project in the Virgin Islands. While it approved a change order to perform the additional work, the contractor incurred other additional costs, including attorneys fees, to convince the USPS to accept its request for additional money. Those monies were submitted in the form of a claim and denied.

The U.S. Postal Service Board of Contract Appeals upheld the denial stating that the costs included in the claim "had nothing to do with the performance of the changed work or genuine contract administration." The Federal Circuit disagreed.

The Federal Circuit took the position that the monies included in the claim reasonably flowed from negotiations associated with the change order process. This conclusion was important, for the Federal Circuit framed the issue as follows: "If a contractor incurred the cost for the genuine purpose of materially furthering the negotiating process, such cost should normally be a contract administration cost allowable under FAR 31.205-33, even if negotiation eventually fails and a CDA claim is later submitted." Here, the facts revealed that the parties were, in fact, making attempts to negotiate an amicable resolution regarding price for a number of months prior to submission of the claim. Consultants and attorneys were used by the contractor to assist it in its presentation to the Postal Service. Because the evidence suggested that the contractor’s underlying purpose was to resolve the dispute, the Federal Circuit held that these costs were recoverable.

Tip Top illustrates the fine line one must walk when it comes to the collection of attorneys fees. Certainly, once an actual claim is submitted by a contractor, there can be no expectation to collect fees from that point forward. The dispute has traveled too far down the road of dispute resolution. Prior to that point, however, if a contractor can prove that the costs incurred for counsel stemmed from a desire to negotiate an amicable resolution to a change order dispute, recovery of fees is possible.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

By: Joseph A. Hackenbracht 

On July 18, 2012, the Small Business Administration published a proposed increase in the small business size standard for “Dredging and Surface Cleanup Activities” from $20 million to $30 million in average annual receipts. 77 FR 42197. The average annual receipts are calculated by averaging a concern’s receipts for the last three fiscal years. 13 CFR 121.104(c). Receipts means “total income.” 13 CFR 121.104(a).

In order to qualify as small on a Federal procurement, a concern must also perform at least 40 percent of the volume dredged with its own equipment or equipment owned by another small dredging concern. 13 CFR 121.201; note 2. This requirement, sometimes referred to as the “40 percent rule,” has been in SBA’s size standards for small business since 1974. Before 1974, the Department of Defense’s Armed Services Procurement Regulations (ASPR’s) had contained such a requirement for many years. (ASPR 1-701.1(A)(2)). In 1974, it was determined that DoD was exceeding its authority because the obligation to set size standards for small business was within the jurisdiction of the SBA.

When the SBA proposed to increase the size standard for Dredging in July, 2012, it also sought comments regarding the requirement that in order to qualify as small that a concern must perform at least 40 percent of the dredging with its own equipment or equipment owned by another small dredging concern. SBA has heard from small dredging firms that believe they should be able to lease equipment from any size firm as long as employees from the small firm perform the work on the contract.

At this time, however, SBA has proposed to continue requiring small dredging concerns to comply with the “40 percent rule,” in order to ensure that these firms perform a significant and meaningful portion of a dredging project set aside for small business. SBA has asked for comments from the industry and the public concerning (1) whether there continues to be a need for the current 40 percent equipment requirement; (2) whether there is a rationale for a different percentage; and (3) whether a different and more verifiable requirement based on an alternative measure (such as value of contract or personnel involved) may achieve the same objective of ensuring that small businesses perform significant and meaningful work.

The following methods can be used for the submission of comments: (1) the Federal eRulemaking Portal: www.regulations.gov, by following the instructions for submitting comments; or (2) Mail/Hand Delivery/Courier to Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third Street SW., Mail Code 6530, Washington, DC 20416. Please note that SBA will not accept comments to this proposed rule submitted by email. Also, be sure to refer to “RIN 3245-AG37” when submitting comments, so that SBA correctly attributes your comments to the proposed rule in question.

Joseph A. Hackenbracht is a Partner in the firm and a member of the Federal Contracting Practice Group.

By: Edward T. DeLisle & Maria L. Panichelli

On August 27, 2012, FAR council issued a final rule entitled Reporting Executive Compensation and First-Tier Subcontract Awards (“the Rule”). Although this Final Rule was implemented just last month, it has been a topic of discussion on Capitol Hill for over six years.

In 2006, the Federal Funding Accountability & Transparency Act of 2006 (Pub. L. 109-282, 31 U.S.C. § 6101 note) (“FFATA”) was enacted, with a two fold purpose: (1) to reduce “wasteful and unnecessary spending;” and (2) to ensure that the public can access financial information on entities and organizations receiving federal funds, which included federal government contractors and their subcontractors. FFATA required all federal contractors to divulge, through the use of a website set up by the Office of Management and Budget (“OMB”), contract and subcontract award information for all contracts over $25,000. Contractors’ reporting responsibilities were further expanded by the Government Funding Transparency Act of 2008 (“GFTA”). GFTA amended the FFATA to provide that contractors report, in addition to contract and subcontract award information, the names and total compensation of the five most highly compensated officers of those entitities. On July 8, 2010 an interim rule was put in place, requiring Federal contractors to comply with the new reporting requirements.

It was this interim rule (with a few minor modifications) that was ultimately implemented on August 27, 2012. Under the Final Rule, prime contractors must report contract and first-tier subcontract awards, and the names and executive compensation of the five most highly compensated officers of both the prime contractor, and its first-tier subcontractors. The information must be reported by the end of the month following the month of a contract award, and annually thereafter, in the Central Contactor Registration system (“CCR”)(now the “System of Award Management” or “SAM”). All of the information is to be made accessible to the public through www.usaspending.gov.

Compliance with the rule requires that contractors fully understand the reporting requirements, which can be rather complicated. Accordingly, some guidance concerning the reporting requirements is set forth below.

Subcontract Award Reporting

This requirement is applicable to all Contracts with value of $25,000 or more, but there is no requirement to disclose classified information. This represents a change from the interim rule, which included language stating that it did not apply to classified contracts; the Final Rule expands this provision to state that nothing in the statute requires disclosure of “classified information.” The Final Rule deleted an additional exception that had been contained in the interim rule, namely that the rule did not apply to contracts with individuals. There is no such exemption in the Final Rule. There is also no exemption for COTS or commercial items.

A “First-Tier Subcontract” is defined as a subcontract “entered into by the [Prime] Contractor to furnish supplies or services for performance… It includes, but is not limited to, purchase orders and changes and modifications to purchase orders, but does not include contracts that provide supplies or services benefiting two or more contracts.” FAR 52.204-10(a). This too represents a change from the interim rule. The interim rule’s definition of “first-tier subcontracts” has been modified slightly, to clarify that the definition does not include long-term contracts for supplies and materials that are not solely related to a single, applicable contract. According to the preamble of the Final Rule, this change is meant to give contractors “greater flexibility” in determining what type of company qualifies as a “first-tier subcontractor.”

An extensive list of the information contractors must report regarding first-tier subcontract awards can be found at FAR 52.204-10(a).

Executive Compensation Reporting

Contractors and applicable Subcontractors must comply with this requirement only if that contractor or subcontractor, in the preceding fiscal year, received eighty percent (80%) or more of its annual gross revenues and twenty-five million or more in annual gross revenues from federal contract awards, AND if the public did not otherwise have access to this executive compensation information from other publically available sources (for example, through SEC or IRS filings).

The category of subcontractors required to report executive compensation is limited to “First-Tier Subcontractors,” which is defined in the same manner as set forth above. The Subcontractor is required to report to the prime contractor names and total compensation of each of the five most highly compensated executives for that subcontractor’s preceding completed fiscal year. The Prime Contractor, in turn, is required to report this information, along with its own executive compensation information to the extent that it falls within the parameters of the Rule.

For purposes of disclosure under the final Rule, both “executive” and “compensation” are defined broadly. Compensation includes not only salary, but also:

– (1) bonus;
– (2) awards of stock, stock options, and stock appreciation rights;
– (3) earnings for services under non-equity incentive plans;
– (4) change in pension value;
– (5) above-market earnings on deferred compensation which is not tax-qualified; and
– (6) other compensation, if the aggregate value of all such other compensation (e.g., severance, termination payments, value of life insurance paid on behalf of the employee, perquisites or property) for the executive exceeds $10,000.

“Executive” is defined as any officer, managing partner, or any employee in a management position.

The prime contractor must report executive compensation information in two different locations. For subcontractors, the information is entered into the FFATA Sub-award Reporting System (“FSRS”). For contractor information, primes must use the Federal Procurement Data System (“FPDS”), where certain required information will be pre-populated by the government. Prime Contractors must note two things here: First, as to first-tier subcontractors, the prime is responsible for notifying its subcontractors that the required information will be made public. Second, regarding its own information, under the Final Rule it is the prime’s responsibility to check and correct any inaccurate information pre-populated in FPDS.

This Rule places prime contractors in the precarious position of collecting and reporting not simply their own information, but information from others. How can a prime assure itself that it is collecting and reporting the full extent of the subcontractor information required? How can it ensure that the information it receives from its subcontractors is accurate? These are troubling issues and prime contractors will have to develop risk management systems to assist with compliance. Specifically, prime contractors should establish a mechanism, through their subcontracts, for example, to notify subcontractors of the reporting requirements and what information must be provided. However, since the reporting obligation applies to the prime contractor and not subcontractors, it will not be sufficient to merely “flow down” the actual reporting responsibilities. Having subcontractors certify the information provided may also assist prime contractors in protecting themselves from the risks associated with the Rule. And primes must not forget about reporting their own information. Systems for collecting, reporting and updating this information must be established to remain compliant. Oh, the joy of dealing with the federal government…

Edward T. DeLisle
Maria L. Panichelli has been closely following the development of this Rule since its inception, and has advised many contractors with regards to compliance. For further information, or for a short slide presentation concerning the Rule, please contact Mr. DeLisle at edelisle@cohenseglias.com.

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.