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Use of False Estimates Can Be Basis for FCA Liability


The summary dismissal of a False Claims Act suit was reversed and remanded by the Court of Appeals for the Ninth Circuit because there was a genuine issue of material fact as to whether the contractor knowingly submitted its bid based on false estimates. The relator alleged the contractor violated the FCA by submitting a fraudulently low bid, based on knowing underestimates of its costs, in order to improve its chances of winning a contract for software and hardware used to support space launch operations. The contractor argued allegedly "false" estimates cannot be the basis for liability under the FCA, because an estimate is a type of opinion or prediction, and thus cannot be said to be a "false statement" within the meaning of the FCA. The court, however, rejected this argument based on the "fraud-in-the-inducement" theory of legal liability. The court reasoned that FCA liability may attach where there is "fraud surrounding the efforts to obtain the contract." Thus, false estimatesódefined to include fraudulent underbidding in which the bid is not what the contractor actually intends to chargeócan be a source of liability under the FCA.

No Specific Intent

The court then considered whether there was a genuine issue of material fact as to whether the contractor engaged in fraudulent underbidding and determined the district court applied the wrong legal standard under the "knowledge" prong of the FCA. The district court required the relator to demonstrate the contractor acted with "the intent to deceive," but the terms "knowing" and "knowingly" as defined in the FCA "require no proof of specific intent to defraud" (31 USC 3729(b)(1)). Construing the facts in a light most favorable to the relator as the non-moving party, the Ninth Circuit concluded there was a genuine issue of material fact as to whether the contractor acted either knowingly, in deliberate ignorance of the truth, or in reckless disregard of the truth when it submitted its bid. Specifically, the relator demonstrated that contractor employees were instructed to lower their bids without regard to actual cost. ( U.S. ex rel. Hooper v. Lockheed Martin Corp., CA-9, 56 CCF ∂79,866)




(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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