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Contractor's FCA Liability Exceeded Quantum Meruit Recovery


According to the Court of Federal Claims, a contractor was subject to False Claims Act liability, despite prevailing in part on its claims for payment of unpaid invoices, because the government's knowledge the contractor's proposal was pretextual did not displace the contractor's knowledge the proposal was false. The contractor sought payment for services provided under a modification that extended the term of an indefinite quality/indefinite delivery contract to provide sealift logistic services awarded under the Small Business Administration's 8(a) program. The government contended the contractor committed fraud by submitting a proposal that misrepresented the cost for the services to be provided, which rendered the modification void ab initio. According to the government, the contractor submitted a $2,999,949 proposal for five option years with full knowledge its annual billing for the same scope of work had been approximately $3.5 million per year. The 8(a) program required contract opportunities to be awarded "on the basis of competition" if, among other things, the anticipated award price of the contract would exceed $3 million, including options (15 USC 637(a)(1)(D)(i)).

Mountain of Evidence

A "mountain of record evidence" made it inconceivable the government justifiably relied on the contractor's proposal. Government documents showed contracting officials were "fully aware of the need to befog the [SBA] in order to obtain its approval" and to avoid competition requirements by limiting the award price to $3 million. For example, although the government was aware of the discrepancy between annual billings and the proposal amount from the outset of discussions, a senior official encouraged any steps necessary to award the extension to the contractor, and the contractor's proposed phase-out of services was dismissed as necessary to remain within the $3 million threshold. In addition, a government employee prepared a cost estimate to support a request to add funding, which led to an approximately $30 million increase in the cost estimate for the modification's requirements. The government failed to demonstrate justifiable reliance on the contractor's misrepresentation of the cost of proposed services, and the contract was not void at its inception. The contractor was entitled to payment to the extent funding was available for the work orders pursuant to which invoiced services were performed, and its total recovery was $1,068,636.

Maximum FCA Penalty

Despite holding the contractor's recovery in quantum meruit negated forfeiture under 28 USC 2514, the court concluded the government' institutional knowledge of the contractor's performance history and knowledge the proposal was pretextual did not neutralize the contractor's FCA liability. Government officials did not engage in developing the proposal or direct it be presented as a scenario of services that could be obtained for $3 million. In addition, although the government failed to share its knowledge of the proposal's falsity with the SBA, which was the contracting agency, the SBA's lack of knowledge of the falsity did not absolve the contractor of FCA liability. Because the proposal leading to award of the modification was fraudulent, all invoices submitted under the modification were tainted by fraud. As a result, the contractor was assessed the maximum penalty for each invoice for a total penalty of $1,397,000. The evidence also showed the contractor knew three invoices submitted after it was ordered to stop work contained false statements, and the government's knowledge of the alleged falsity inherent in the proposal did not provide a basis for charging the government with knowledge of the alleged falsities in these invoices. For unsupported amounts in the 3 invoices, the government also was entitled to recover $568,802 in damages under the Contract Disputes Actís fraud provision. ( Veridyne Corp. v. U.S., FedCl, 56 CCF ∂79,845)




(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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