Category: Authors

Sixth Circuit Brings False Claims Act Damages Back Down to Earth

Heather L. Petrovich

In a welcomed decision, the Sixth Circuit placed sensible parameters on damages in False Claims Act (“FCA”) cases, which will significantly reduce exposure for contractors.  In United States ex rel. Wall v. Circle C Construction, LLC No. 14-6150, 2016 WL 423750 (6th Cir. Feb. 4, 2016), the Sixth Circuit rejected the government’s argument that where the contractor’s alleged fraud or false certification induced the government to enter into the contract or was a condition for participation or eligibility, damages should be treble the full contract value, even if the work has been performed to the government’s satisfaction.

Under the FCA, while the government may recover “3 times the amount of damages which the Government sustains because of the act,” 31 U.S.C. § 3729(a), damages are not defined and have thus led to varying formulations among the circuits.  Wall involved a construction contract for Army warehouses and required the contractor to certify compliance with certain minimum wage requirements, but a subcontractor paid its employees less than the required minimum. Even though there were no performance issues with the work itself, and instead of seeking damages based on the subcontractor’s compensatory shortfall, the government argued, and the district court agreed, that damages should be treble the full contract value.  This resulted in assessed damages that were approximately 76 times more than the subcontractor’s wage deficit, which was the actual harm to the government. Continue reading “Sixth Circuit Brings False Claims Act Damages Back Down to Earth”

The Justice Department’s Yates Memorandum and Three Tips for Government Contractors to Manage the Risks

Justin A. Chiarodo and Christian N. Curran

The Department of Justice (DOJ) is setting its sights on individual accountability for corporate wrongdoing. That is the message that DOJ has been promoting following the recent internal memorandum issued by Deputy Attorney General Sally Quillian Yates titled “Individual Accountability for Corporate Wrongdoing” (the Yates Memo), which relates to DOJ’s practices in conducting corporate investigations. Although the idea of holding individuals accountable for corporate wrongdoing is not new, the Yates Memo’s relative focus on individuals as part of corporate investigations suggests more scrutiny of individuals in civil and criminal investigations. This focus complements a well-documented increase in the suspension and debarment of individuals in recent years, and reinforces the heightened risks that business owners, executives, managers, and employees face throughout the government contracting community.

The Yates Memo presents a good opportunity for government contractors to review their compliance programs in the new year—and in particular their practices for conducting internal investigations—to ensure that they are actively managing the risks presented by this professed focus on individuals. This alert summarizes the Yates Memo and offers three tips to government contractors to consider in response. Continue reading “The Justice Department’s Yates Memorandum and Three Tips for Government Contractors to Manage the Risks”

What DoD Contractors Need to Know: New Changes to Cybersecurity and Cloud Computing Regulations

Justin A. Chiarodo and Philip E. Beshara

As the federal government and contracting community near the end of a year filled with headline-grabbing cyber incidents, the Department of Defense (DoD) has recently issued interim cybersecurity and cloud computing regulations that amend the DFARS and impose important new information safeguarding, reporting, and cloud computing requirements. These are major changes that impact all DoD contractors, and if your company holds DoD contracts you should carefully review these new requirements and assess them as part of your broader corporate cybersecurity strategy.

This alert highlights the key requirements in the Interim Rule (available here).

Information Safeguarding and Cybersecurity Reporting

The Interim Rule expands DoD’s cybersecurity safeguarding and reporting requirements, including the types of information covered by the requirements, governing standards, and triggering events. Up until now, many of DoD’s cybersecurity requirements applied to select groups of defense contractors—those deemed “operationally critical” under the 2015 NDAA or “cleared defense contractors” under the 2013 NDAA, and contractors handling “unclassified controlled technical information,” or “UCTI,” under the DFARS. Continue reading “What DoD Contractors Need to Know: New Changes to Cybersecurity and Cloud Computing Regulations”

Déjà Vu All Over Again: Six Tips to Prepare for a Government Shutdown

Justin A. Chiarodo and Heather L. Petrovich

With Congress quickly approaching a September 30 funding deadline with no adequate spending measures in place, and the Office of Management and Budget now directing agencies to prepare contingency plans, the possibility of a government shutdown is becoming increasingly likely. Unfortunately, government contractors faced these challenges just two short years ago during a 16-day shutdown. Among other challenges, contractors may face a lack of incremental funding; the inability to enter into new contracts or contract modifications; closed government facilities; furloughed government employees; delayed payments; increased indirect costs; and unexercised and deferred contract options. This alert highlights steps government contractors can take to protect their business interests in the event of a shutdown.

Review Your Contracts 

Reviewing your contracts is good advice in all times, but particularly so when facing a shutdown. Several key areas are worth reviewing before a shutdown. First, contractors should consider the amount and type of contract funding for each contract. A shutdown will affect incrementally funded contracts more than fully funded contracts. Though exceptions may apply, the funding for incrementally funded contracts may lapse in the event of a shutdown, which could cause the contract work to come to a halt. Fully funded contracts may be impacted by furloughed employees, facility closures, or other unexpected costs. Second, the place of contract performance may affect the ongoing work on a contract if the contractor is performing at a government facility. Many government facilities will close during a shutdown and furloughed employees or limited hours may affect those government facilities that do remain open. Third, the period of contract performance may affect a contract in that the government cannot exercise options and contract extensions during a shutdown. Fourth, the statement of work could also affect how the shutdown applies to a contract. For instance, national security and emergency preparedness contracts are much more likely to be funded during a shutdown than facility maintenance work. Nonetheless, even those exempt contracts may still be affected if the statement of work requires contractors or projects to interact with furloughed employees. Continue reading “Déjà Vu All Over Again: Six Tips to Prepare for a Government Shutdown”

We Just Received a Government Subpoena. Now What?

Merle M. DeLancey Jr., Steven J. Roman, James R. Murray, and Christian N. Curran

If you are a multi-million dollar company and receive a subpoena for your documents and records, you simply send it to the legal department. But what if you are a smaller healthcare provider? Responding to a government subpoena can be daunting, especially if it is your first one, and you may not have the personnel or resources to respond without a significant disruption to your business. Does the subpoena mean you or your company is about to be charged with a crime? Do you have to submit original records? Will the government insist on the production of all documents within the often broadly worded scope of a subpoena? How do you deal with electronic information on your computer system? How do you protect patient confidentiality? Will your insurance help with the costs of complying with the subpoena? What can you do to ensure the company is prepared ahead of time?

Step One: Issue a Document Hold Notice and Consult Counsel

The first thing you should do when you receive a government subpoena is issue a written notice to your employees to protect and maintain any documents and records that may be encompassed by the subpoena. As part of that process, you will also need to suspend any records destruction practices that you currently have in place. The failure to produce or preserve potentially relevant documents and information can result in significant exposure. Courts have regularly penalized companies and individuals who fail to produce or preserve potentially relevant materials. It is important to send the notice out as soon as possible and to thoroughly document its distribution. You should also simultaneously consult with counsel to review the subpoena and ensure that you are taking all necessary steps to preserve information. Continue reading “We Just Received a Government Subpoena. Now What?”

Medicare Advantage Program Enforcement: Increased Publicity May Lead to Increased Scrutiny

Merle M. DeLancey Jr. and Lyndsay A. Gorton

On May 19, 2015, the chairman of the Senate Judiciary Committee, Senator Charles E. Grassley (R-IA), requested information from United States Attorney General Loretta Lynch and Andrew M. Slavitt, Acting Administrator for Centers for Medicare and Medicaid Services (CMS) regarding how the agencies are working together and separately to prevent Medicare Advantage fraud. Senator Grassley’s letters rely on April 2015 investigative findings issued by the Center for Public Integrity for his assertion that there is “an increasing number of lawsuits against insurance companies” for Medicare Advantage fraud, and the Government Accountability Office’s (GAO) 2015 Annual Report, which suggests that CMS “could save billions of dollars by improving the accuracy of its payments to Medicare Advantage programs. . . .” To ensure that CMS has the appropriate “safeguards” in place to prevent fraud, Senator Grassley requested answers to the following questions by June 3, 2015:

  1. What steps has the Department of Justice (DOJ) taken, and is currently taking, to ensure that insurance companies are not fraudulently altering risk scores?
  2. Is DOJ working in conjunction with CMS to investigate risk score fraud? If not, why not?
  3. In the past five years, how many Medicare Advantage risk score fraud investigations has DOJ conducted? Of the investigations, how many have resulted in criminal and/or civil sanction?

Senator Grassley’s letters were sent only weeks after CMS issued its 2016 Rate Announcement and Call Letter on April 6, 2015. After accepting and reviewing comments on its Advance Notice and Draft Call Letter, which estimated a 0.95 percent decrease in revenue for plan providers, the April 6 announcement estimated a 3.25 percent increase in revenue based on finalized 2016 rates. Neither the Attorney General nor CMS has responded to Senator Grassley’s requests. Continue reading “Medicare Advantage Program Enforcement: Increased Publicity May Lead to Increased Scrutiny”

Responding to a Warrant—What to Do if Your Company Is Subject to a Fraud Investigation

Merle M. DeLancey Jr., Steven J. Roman, and Philip E. Beshara

This is the scenario: you are an executive or manager at a government contractor. It’s Friday morning. You are hoping to leave early and get a jump on the weekend. Then, the receptionist buzzes you and says, “There are men and women out here wearing FBI windbreakers and they want to execute a search warrant.” You wonder, “Can I tell the agents they cannot come in?” Your company does not have in-house counsel. You can call your attorney, but his or her office is across town and the FBI agents say they are not going to wait. “What should I do?”

This may sound like an unlikely scenario, but such government investigations happen all of the time around the country and are rarely expected. In recent years, prosecutors and agents from the Department of Justice (DOJ) and Inspector General Offices have brought charges of procurement fraud and corruption against over 100 defendants, including officers and employees of companies of all sizes. In September 2014, DOJ’s Criminal Division announced that it would be “stepping up” its investigation and prosecution of criminal violations of the False Claims Act, using a team of senior federal prosecutors dedicated exclusively to procurement fraud. DOJ’s announcement cited the use of search warrants as one of the significant investigative tools at prosecutors’ disposal. In addition to their increased exposure to law enforcement authorities, small businesses should expect greater scrutiny of their contracting dollars, an initiative that has received bipartisan support in Congress. In March, the House Small Business Committee approved a measure calling for a sweeping examination into abuses in small business contracting, and the Small Business Administration recently proposed a rule for harsher penalties relating to small business subcontracting limitations. Continue reading “Responding to a Warrant—What to Do if Your Company Is Subject to a Fraud Investigation”

New Anti-Trafficking Regulations Finalized for Government Contractors

Merle M. DeLancey Jr., Daniel A. Broderick, and Philip E. Beshara

On January 29, 2015, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration published a final rule, effective March 2, 2015, implementing extensive new prohibitions and compliance requirements to the Federal Acquisition Regulation (FAR). The changes, mandated by President Obama’s December 2012 Executive Order (E.O. 13627) and the FY 2013 National Defense Authorization Act, raise across-the-board compliance concerns for government contractors—especially those that regularly employ foreign nationals.

New Restrictions and Requirements

The rule, amending FAR Subpart 22.17 and Contract Clause 52.222-50, will prohibit contractors and subcontractors from denying employees identity or immigration documents; using misleading or fraudulent recruitment practices; charging employees recruitment fees; using recruiters that do not comply with local labor laws of the country recruited from; and providing or arranging housing that fails to meet the host country’s housing and safety standards. The regulations also generally require contractors and subcontractors to pay for or provide transportation of foreign workers back to their home country at the end of their employment if they were brought to the work-country for the purpose of working on a U.S. Government contract or subcontract; or if the work-country is the U.S., they are not a U.S. national, and transportation is required under existing temporary worker programs or pursuant to a written agreement with the employee.

If required by law or under the contract, contractors and subcontractors must provide a written work document to employees in a language the employee understands. The rule further requires that the document contain, at minimum, details about work description, wages, the prohibition on recruitment fees, work location(s), living accommodations and associated costs, time off, round-trip transportation arrangements, grievance process, and the content of applicable trafficking laws and regulations. Continue reading “New Anti-Trafficking Regulations Finalized for Government Contractors”

SBA Proposes Anticipated Small Business Subcontracting Rule

Justin A. Chiarodo and Philip E. Beshara

A recent proposed rule issued by the Small Business Administration (SBA) previews long-awaited changes to SBA’s regulations governing small business government contracting programs. These changes will impact both large and small government contractors alike and warrant close attention. This alert highlights key elements in the proposed rule, including major changes to subcontracting limitations for small business set-asides that first arose in the FY 2013 National Defense Authorization Act (NDAA). Given the explosive growth in enforcement for small business program violations, and draconian new penalties for such violations, all contractors should take steps to ensure they comply with the upcoming rule changes.

Changed Method for Calculating Subcontracting Limitations

The FY 2013 NDAA implemented a number of changes to small business programs in federal procurements (we recently covered these changes here). The primary reform in the NDAA—now addressed in the SBA’s proposed rule—is a significant shift in the method of limiting subcontracting under set-aside procurements. The SBA and FAR currently require prime small business concerns on set-aside contracts to incur set percentages of costs incurred under the contract based on the contract type (e.g., at least 50 percent of the personnel or manufacturing costs incurred under service and supply contracts). The challenges in monitoring this cost-based method led Congress to amend the Small Business Act. That statute now limits the percentage of the total contract price a prime awardee can subcontract out. Consistent with the statute, the proposed rule would amend 13 CFR § 125.6 to require small business primes to perform 50 percent of the total contract price for service and supply contracts, 15 percent for general construction, and 25 percent for specialty trade construction. Continue reading “SBA Proposes Anticipated Small Business Subcontracting Rule”

Guidelines for Contractors Considering Giving Gifts to Government Customers

Merle M. DeLancey Jr. and Christian N. Curran

As the holiday season approaches, companies may consider giving gifts to their government customers. But companies should be aware of the legal limits imposed on gift giving, which could result in serious penalties if ignored. Generally, federal government employees may not solicit or accept gifts or any other thing of value from prohibited sources. See generally, 5 C.F.R. Part 2635, Standards of Ethical Conduct for Employees of the Executive Branch. A prohibited source is defined as a person or company seeking official action by, doing business with, or seeking to do business with the employee’s agency, or a person or company regulated by the employee’s agency or that has interests that may be substantially affected by the employee’s official duties.

There are exclusions under the definition of “gift” that allow for some leeway in giving. Snacks or light refreshments (e.g., coffee and doughnuts at a seminar, but not as part of a meal) are excluded from the definition of gift. Items of little intrinsic value such as greeting cards are also excluded. Further, anything that a government employee pays “market value” for is not considered a gift. Market value can have varying meanings, but generally is considered face value, what the contractor paid for it, or the open market equivalent, depending on the item. Continue reading “Guidelines for Contractors Considering Giving Gifts to Government Customers”

Exit mobile version
%%footer%%