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Improper Billing for Bonus Program Potential False Claim

A motion to dismiss qui tam False Claims Act claims was denied by the District Court for the District of Massachusetts because the relator's allegations concerning improper billing for an executive bonus program were sufficient to establish a nexus between a false claim and a government contract. The program provided an incentive for the contractor's executives and managers to make operational and process improvements in daily operations resulting in increased cash flow and reduced debt and interest expense. The contractor received government approval to charge compensation bonuses as allowable costs for reimbursement as part of overhead charges. According to the relator, a business unit of the contractor improperly included a $23.7 million accounting reclassification as a real improvement and caused related bonuses to be billed to the government in violation of 31 USC 3729 (a)(1) and (2). The contractor argued the relator's failure to allege the existence of a particular contract between the contractor and the government or the performance of government work by the business unit that included the reclassification was fatal to his FCA claims.

Discovery Appropriate

However, an FCA claim can originate from a contract or the violation of a statute or regulation, and here, the relator alleged the contractor knowingly violated FAR 31.205-6 (a), which limits the allocability of compensation for personal services, and FAR 31.205-6 (f)(1), which provides that bonuses and incentive compensation are allowable costs only to the extent certain criteria are satisfied. The contractor also relied on more general Federal Acquisition Regulation provisions regarding the reasonableness of costs ( FAR 31.201-3 (a)) and the allocability of costs ( FAR 31.201-4). Although the relator only conclusorily contended there were "numerous contracts by and between the [contractor] and the [g]overnment," for purposes of ruling on the motion to dismiss, his failure to identify specific contracts justifying the application of the FAR was not fatal to his claims. The existence of contracts upon which false claims were allegedly based was plausible and discovery to provide greater details was appropriate. The court also held the complaint sufficiently stated FCA claims under Federal Rule of Civil Procedure 12(b)(6) and met the heightened pleading requirements of FRCP 9(b). ( U.S. ex rel. Dyer v. Raytheon Co., DC Mass, 55 CCF 79,639)




(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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