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Claim Used as "Negotiating Ploy" Was Fraudulent

The amount of a Contract Disputes Act fraud penalty assessed on a contractor by the Court of Federal Claims was upheld by the Court of Appeals for the Federal Circuit because the assessment applied to the fraudulent portion of the contractor's claim. The contractor, engaged to construct a road on a tropical island, found it difficult to compact soil. It blamed the government's contract requirements, claiming $64 million in damages. At trial, the government counterclaimed, alleging the contractor's claim violated the CDA. Under the antifraud provision of the CDA (41 USC 604), "[i]f a contractor is unable to support any part of his claim and it is determined that such inability is attributable to misrepresentation of fact or fraud on the part of the contractor, he shall be liable to the [g]overnment for an amount equal to such unsupported part of the claim." The CFC found the contractor underbid the contract with the intent to recoup any shortfall through equitable adjustments and consequently submitted the claim as a "negotiating ploy" (50 CCF 78,635). The contractor, therefore, violated the CDA by submitting a false claim with intent to deceive the government. The CFC determined the portion of the contractor's complaint that claimed future costs was fraudulent and assessed the CDA penalty accordingly, but it did not assess a penalty for the amount claimed as breach of contract damages.

Good Faith Submission

On appeal, the contractor did not offer a strong challenge to the CFC's findings, but instead argued the CFC's decision should be set aside because the court found only $50.6 million of the $64 million claim was fraudulent. However, the CFC's decision to assess the lesser amount as a penalty did not undermine its factual findings. Though the breach of contract claims could also have been fraudulent, they could be supported by different methodologies, which even if incorrect were not fraudulent. The contractor further argued a claim can be fraudulent only if it rests on false facts rather than on a baseless calculation. This argument lacked merit, as the CDA at 41 USC 605(c)(1) requires the submission of a claim "in good faith" and with "supporting data [that] are accurate and complete." By certifying to $64 million, the contractor represented the entire claim was submitted in good faith. Congress enacted the antifraud provision of the CDA specifically to address such baseless claims. The contractor's argument the penalty was unconstitutional under the Eighth and Fifth Amendments also lacked merit. The penalty was not disproportionate to the possible harm to the government. (Daewoo Engineering and Construction Co. v. U.S., CA-FC, 53 CCF 79,065)

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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