Richard J. Conway and Justin A. Chiarodo
In a significant decision regarding the application of the False Claims Act (FCA) to firm-fixed price procurement contracts, the U.S. District Court for the Middle District of Florida recently held that a government contractor working under a fixed-price contract is not liable under the FCA for higher than expected profits and “failing to notify the Government that the work could be performed less expensively and charged a lower price” than the contract price. U.S. ex rel. Prime v. Post, Buckley, Schuh & Jernigan, Inc., 2013 WL 4506357, No. 6:10-cv-1950 (M.D. Fla. Aug. 23, 2013).
The defendant was a joint venture that had entered into a fixed price indefinite delivery/indefinite quantity (ID/IQ) contract with the government to provide architect and engineering services for an Everglades restoration project overseen by the Army Corps of Engineers. As the project was a first-of-its-kind effort, the Corps planned to reduce its cost risk by using a fixed-price contract performed through task orders. The ID/IQ contract provided negotiated fixed-price labor rates and a negotiated profit component, derived primarily from past Corps contract experience. Subsequent fixed-price task orders were lump-sum, determined in accordance with the agreed-upon labor rates multiplied by the number of days required to complete the work, and included the agreed-upon profit component. The joint venture saw its profit margin increase through the use of efficient staffing of task orders with lower-cost resources than those contemplated in the original ID/IQ formulas. Continue reading “Increased Profit Under a Firm-Fixed Price Contract a False Claim? Not So Says One Federal District Court”
Justin A. Chiarodo and Stephanie M. Harden
Two recent regulatory actions by the Department of Labor will impose significant new affirmative action and data collection requirements on federal contractors and subcontractors. The final rules will impact many federal prime and subcontracts performed in the United States and warrant close attention by contractors of all sizes. This alert highlights key provisions in those rules, which are presently set to go into effect on March 24, 2014.
Overview and Application
On September 24, 2013, the Department of Labor published two final rules on new affirmative action obligations for federal contractors and subcontractors. These new rules make changes to the regulations implementing Section 503 of the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 793 (2006), and the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA), 38 U.S.C. § 4212 (2006). Section 503 prohibits federal contractors and subcontractors from employment discrimination against individuals with disabilities, and the VEVRAA prohibits such discrimination against protected veterans. Both laws require federal contractors and subcontractors to take affirmative action to recruit, hire, promote, and retain covered individuals, and the new final rules strengthen these affirmative action requirements. The final rule for Section 503 also makes changes to the nondiscrimination provisions of the regulations to bring them into compliance with the Americans with Disabilities Act Amendments Act of 2008, Pub. L. No. 110-325, 122 Stat. 3553 (2008). The requirements of these rules are in addition to those of the Americans with Disabilities Act of 1990, 42 U.S.C. §12101 (2006), and state laws. Continue reading “New Department of Labor Regulations to Increase Contractors’ Affirmative Action Obligations”
Merle M. DeLancey Jr. and Justin A. Chiarodo
In a significant decision regarding the “fraud-in-the-inducement” theory under the False Claims Act (FCA), the Eighth Circuit recently reversed a District Court’s dismissal of an FCA claim brought by a former employee against a major pharmaceutical company. United States ex rel. Simpson v. Bayer Healthcare, No. 12-2979, 2013 WL 5614268 (8th Cir. Oct. 15, 2013), aff’g in part, rev’g in part, Order, No. 08-5758, 2012 WL 5358333 (D. Minn. July 19, 2012). The Simpson decision demonstrates courts’ willingness to accept a “fraud-in-the-inducement” theory of liability even when the relationship between the alleged fraud and the claim for payment is attenuated, at best. The proliferation of the “fraud-in-the-inducement” theory-and the significant damages exposure it presents-raises a number of challenges for companies in the defense, healthcare, and other sectors that are paid with federal funds.
In Simpson, the relator alleged that the company, Bayer, knew that its cholesterol lowering drug Baycol increased the risk of developing rhabdomyolysis, a rare but serious muscle disorder. Despite knowing that rhabdomyolysis and Baycol were linked, Bayer allegedly instructed its sales representatives to push the product to customers, including the Department of Defense (DoD), which purchased the drug under several contracts. According to the relator, Bayer representatives told the DoD that no such causal link had been proven. Continue reading “Eighth Circuit Widens FCA “Fraud-in-the-Inducement” Theory”
Merle M. DeLancey Jr.
False Claims Act (FCA) suits against health care providers have dramatically risen during the last three years. However, recent decisions indicate that courts are becoming increasingly skeptical of suits which allege that technical violations of Medicare regulations are actionable FCA violations. The most recent decision indicating such increasing skepticism was issued by the Eighth Circuit Court of Appeals last week in U.S. ex rel. Ketroser v. Mayo Foundation, 2013 WL 4733986, No. 12-3206 (8th Cir. Sept. 4, 2013). In that case, relators brought a qui tam action under the FCA against the Mayo Clinic and several related entities (Mayo). Relators asserted that Mayo falsely billed Medicare for surgical pathology services when it did not submit written reports for each surgical pathology service billed, which was allegedly required by Medicare regulations. The Eighth Circuit found that the regulations at issue did not require such written reports. However, the Eighth Circuit also signaled that even if Mayo was noncompliant with Medicare’s rules and requirements, the relators had not established the “scienter” necessary to show that Mayo “knowingly” submitted false or fraudulent claims for Medicare payment in violation of the FCA. The court concluded that because Mayo’s interpretation of the applicable requirements was at least reasonable, it did not violate the FCA even if it did make a technical mistake under the rules, because it did not act “with the knowledge that the FCA requires before liability can attach…” Continue reading “Courts Are Increasingly Skeptical of FCA Suits Alleging Technical Violations of Medicare Regulations”
David M. Nadler
On November 8, 2012, the U.S. Department of Justice (DOJ) announced its intention to continue expanding the False Claims Act’s (FCA) reach by intervening in a lawsuit against Fluor Hanford Inc. and its parent company, Fluor Corporation (collectively Fluor), in the U. S. District Court for the Eastern District of Washington. In this case, DOJ is using the rarely invoked Byrd Amendment as the hook to pursue FCA claims. The complaint alleges that Fluor used federal contract funds to pay for lobbying services in violation of the Byrd Amendment and therefore, violated the FCA and subjected itself to treble damages. 31 U.S.C. § 3729 et seq. (FCA); 31 U.S.C. § 1352 (Byrd).
As discussed below, there have been few prosecutions under the Byrd Amendment, and FCA liability predicated on false certifications of compliance with the Byrd Amendment is a novel approach. The Fluor case highlights that government contractors must be aware of the lobbying restrictions under the Byrd Amendment as well as the type of conduct that could expose them to liability and treble damages under the FCA. DOJ’s decision to intervene in this case also underscores the government’s increased scrutiny and willingness to prosecute cases involving an alleged misappropriation of public funds. It also demonstrates DOJ’s continued efforts to expand the reach of the FCA by pursuing actions based on conduct that falls within the scope of independent statutes that carry their own civil penalties. Instead of seeking penalties via the underlying statute (here, the Byrd Amendment), DOJ has elected to proceed under the FCA where it can recover treble damages as well as civil penalties. Continue reading “Government Contractors Beware—DOJ Is Now Using the Byrd Amendment to Bring FCA Cases for Alleged Lobbying Violations”
David M. Nadler and Steven J. Roman
The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) jointly issued a new guidance entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act.” Although the 130-page guidance does not break any significant new ground, and generally reiterates positions that the government has previously taken in Foreign Corrupt Practices Act (FCPA) litigation and settlements, the document does provide useful information to companies regarding compliance with, and government enforcement of, the FCPA.
For example, the guidance identifies nine factors that the government considers in conducting an investigation, determining whether to charge a corporation, and negotiating plea or other agreements: (1) the nature and seriousness of the offense, including the risk of harm to the public; (2) the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management; (3) the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it; (4) the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents; (5) the existence and effectiveness of the corporation’s preexisting compliance program; (6) the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution, and cooperate with the relevant government agencies; (7) collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution; (8) the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and (9) the adequacy of remedies such as civil or regulatory enforcement actions. The guidance also includes a number of hypotheticals and case studies that are helpful in suggesting the types of conduct and compliance practices that are more or less likely to lead to government enforcement actions or declination of charges. Continue reading “DOJ and SEC Issue Foreign Corrupt Practices Act Guidance”
David M. Nadler and Steven J. Roman
On November 8, 2011, Assistant Attorney General Breuer promised in a speech to the 26th National Conference on the Foreign Corrupt Practices Act (FCPA) that in 2012 the U.S. Department of Justice (DOJ) would provide “detailed new guidance on the [FCPA’s] criminal and civil enforcement provisions.” More than 30 trade associations led by the U.S. Chamber of Commerce have requested that this promised guidance address several issues and questions summarized below in order to mitigate significant interpretative challenges faced by businesses seeking to comply in good faith with the FCPA. “[I]n order to avoid conflicting interpretations and ensure a uniform policy,” the letter suggests that the guidance be issued by both the DOJ and the U.S. Securities and Exchange Commission (SEC) and that it apply to both criminal and civil enforcement.
Definitions of “Foreign Official” and “Instrumentality”
The trade associations’ letter requests that the DOJ and the SEC provide “a clear, uniform definition” of “foreign official” and “instrumentality.” The letter stresses that the courts’ highly fact-dependent and discretionary approach to these terms, particularly in markets where many companies are at least partially state-owned, “engenders tremendous uncertainty and risks serious misallocation of resources by U.S. businesses seeking to sell their goods and services in foreign markets.” In response, the letter suggests that the forthcoming guidance address at least the following: (1) the percentage ownership or level of control by a foreign government that ordinarily will qualify a corporation as an “instrumentality;” (2) clarification that an “instrumentality” must perform government or quasi-governmental functions and a detailed list of what those functions may include; and (3) exceptions, if any, to the foregoing general principles. Continue reading “Trade Associations Request that Justice Department and SEC Clarify Criminal and Civil FCPA Enforcement”
David M. Nadler and Justin A. Chiarodo
On February 24, 2012, the Department of Defense (DOD) published a final rule amending the Defense Federal Acquisition Regulation Supplement regarding contractor business systems [77 Fed. Reg. 11355]. With only minor changes from the interim rule (effective as of May 18, 2011), the final rule provides for oversight of a contractor’s business systems and empowers the government to withhold payments on contracts when a Contracting Officer determines that a contractor’s system contains “significant deficiencies.”
Consistent with the interim rule, the final rule applies to all contracts governed by the Cost Accounting Standards (CAS) and regulates six categories of “business systems”– Accounting Systems, Estimating Systems, Earned Value Management Systems, Purchasing Systems, Material Management and Accounting Systems, and Property Management Systems. The regulation is implemented by a contract clause that, where inserted, allows the government to withhold payments if one or more “significant deficiencies” are found in any of the above-mentioned business systems. Continue reading “DOD Issues Final Rule on Contractor Business Systems”
What is the Swine Flu?
Richard J. Conway and Merle M. DeLancey Jr.
According to the U.S. Centers for Disease Control (CDC), the Swine Influenza (swine flu) is a respiratory disease caused by type A influenza virus that regularly causes outbreaks of influenza in pigs. The classical swine flu virus (an influenza type A H1N1 virus) was first isolated from a pig in 1930. Swine flu viruses do not normally infect humans. However, sporadic human infections with swine flu have occurred and are occurring now.
What is Known About this Current Outbreak?
According to the CDC, in late March and early April 2009, cases of human infection with swine influenza A (H1N1) viruses were first reported in Southern California and near San Antonio, Texas. Other states and foreign governments have reported cases of swine flu infection in humans, and cases have been reported internationally as well. As of April 30, 2009, there have been 109 cases reported in the United States, with most in New York City, California, and Texas. A toddler who crossed the border from Mexico into south Texas died from a new strain of swine flu on April 29, 2009 in a Houston hospital, the first confirmed death from the virus in the United States. Continue reading “Update on the Government Response to the Potential Swine Flu Pandemic”