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The United States Court of Federal Claims (COFC) recently issued a scathing decision admonishing a government contractor (the contractor) for submitting dubious claims on a levee rehabilitation project (the project) for the U.S. Army Corps of Engineers (ACOE). The COFC went so far as to say, “This case should serve as a cautionary tale to government contractors.” In short, the COFC’s opinion is a blunt reminder of the obligations and steps a contractor must take in preparing, certifying and submitting claims against the United States (the government) and the consequences if a contractor crosses the line.

In this instance, the story begins with the ACOE awarding the contractor a fixed-price contract (the Contract) in August 2010 to rehabilitate a levee in Palm Beach County, Florida. During the project, the contractor certified three claims for increased cost and delay, totaling more than $6 million. The contracting officer denied those claims, and the ACOE subsequently terminated the contractor for cause. The contractor then filed suit against the government under the Contract Disputes Act (CDA). The government responded by asserting:

  1. An affirmative defense that the contractor’s claims were barred by illegality based on the submission of false claims; and
  2. Counterclaims for breach of contract and for fraud pursuant to the Special Plea in Fraud statute, CDA and False Claims Act.

Following the submission of summary judgment motions, the COFC dismissed the government’s claim under the CDA for lack of subject matter jurisdiction and denied the contractor’s attempt to dismiss the government’s fraud counterclaims. The court then proceeded with a bench trial on the government’s fraud allegations based on the contractor’s alleged submission of false delay-day costs and exaggerated equipment costs.

The court concluded that the contractor committed two violations of the False Claims Act by certifying and submitting false claims to the ACOE. Specifically, the court observed the following:

At trial, the [government] showed that [the contractor] misrepresented the value of certain equipment, billing the [government] for operating four off-road dump trucks collectively valued at over $3,500,000 when the trucks were actually worth less than $100,000 combined. The [government] also demonstrated that [the contractor] designed a ratio to inflate its total equipment, labor and overhead costs—a ratio through which [the contractor], at times, billed taxpayers at rates between $2,000 and $22,000 per hour for work performed by a single laborer or piece of equipment. [The contractor] also manipulated that already-dubious ratio by seeking compensation for work performed on days outside of the claim period, often with nominal expenditures of manpower, effort and resources.

 Indeed, the Court stated that the Contractor’s claims were “patently deceitful” and observed that “[w]hen job cost data and recordkeeping are inaccurate, the claim will inevitably contain errors and the line between negligence and reckless disregard for the truth becomes vanishingly thin.” The court found that the contractor crossed the line knowingly and intentionally (or at a minimum with reckless disregard) by:

  1. Failing to earnestly undertake the obligations of claim certification;
  2. Failing to accurately identify the equipment it used and support the valuation of that equipment with proper documentation;
  3. Using a dubious metric, riddled with errors, to measure its inefficiencies and dishonestly inflate its claims;
  4. Employing an artifice through which it sought to inflate costs of its equipment by reporting operation hours that were not consistent with internal records; and
  5. Seeking double recovery of costs.

Acknowledging that its ruling would result in “financial, practical and stigmatic consequences” for the Contractor, the COFC nonetheless held that the Contractor’s claims were forfeited in their entirety and proceeded to impose the maximum statutory penalty of $11,000 per claim under the FCA.

Notably, the Government did not incur any actual damages in this matter, as it had previously denied the Contractor’s claims in their entirety. But, whether the Government incurred actual damages was not the point. The COFC’s opinion is clearly intended to drive home the proposition that: “[Contractors] must turn square corners when they deal with the government.” When contractors on public projects cross the line by preparing and submitting unsubstantiated and inflated claims, they should expect a stiff retort.

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