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No Presumption Costs of Kickbacks Were Passed to Government

A government counterclaim alleging violation of the False Claims Act was dismissed by the Court of Federal Claims for failure to state a claim because the government did not allege facts showing a kickback scheme involving a subcontractor and two contractor employees inflated the contractor's invoices. The dispute arose from the contractor's claim for unpaid costs for dining facility services provided in Iraq and Kuwait under an umbrella contract for logistics support services. The government's counterclaim under 31 USC 3729(a)(1) alleged the contractor's reimbursement vouchers "were false or fraudulent both because they were inflated by kickbacks and because they were submitted upon a kickback-tainted contract." According to the government, there was a presumption that the costs of kickbacks were passed on to the government, so it was not required to allege an invoice in fact included the cost of the kickback or that the kickback inflated the subcontract price.

Attenuated Allegations

The court explained that although cases involving the Anti-Kickback Act have applied a presumption that the costs of a kickback are passed on to the government, this presumption does not apply to FCA cases. Therefore, the government was required to allege a false or fraudulent claim was submitted and the contractor had knowledge of its falsity. Here, the government's allegations were too attenuated to show a false claim was submitted, and the government did not claim the contractor made a false certification. There was no allegation the subcontractor's prices to the contractor were actually inflated, even by the amount of the kickbacks. Even if the contractor's invoices were inflated, the government did not allege facts tending to show the contractor knew of the inflation. The court dismissed the counterclaim, along with another seeking forefeiture of the contractor's claim, for failure to state a claim. However, the government's counterclaims alleging violation of the Anti-Kickback Act and common-law fraud survived the contractor's motion to dismiss. (Kellogg Brown & Root Services, Inc. v. U.S., FedCl, 55 CCF 79,615)




(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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