The False Claims Act and it's Antivenom

Primer On The False Claims Act

Qui tam pro domino rege quam pro se ipso in hac parte sequitur
“he who brings an action for the king as well as himself”

Background
• Passed in 1863 during the Civil War to address fraud in
military procurement contracts
• Also known as “Lincoln’s Law”
• Has undergone substantial amendments by Congress in 1943,
1986, and 2009
• Allows for triple damages

“any person who—
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false
record or statement material to a false or fraudulent claim;”
31 U.S.C § 3729

False Claims Act Is Expansive
• SAIC entered into a contract with NRC to help develop a
national standard for disposal of nuclear waste
• SAIC certified no OCIs and would alert NRC if an OCI arose
U.S. v. SAIC, DC Cir, 2010

The D.C. Circuit:
• Continued the trend of recognizing a FCA violation where the
contractual breach is not conditioned to payment of the
contractor
• The D.C. Circuit requires the breach to be “material” to the Govt
decision to pay

Sampling of Qui Tam Actions
1. Misrepresentation in proposal
2. Misrepresenting social economic status
3. Buying-in under false pretenses
4. GSA schedule most favored customer fraud
5. TINA violation
6. Use of unapproved source
7. Davis Bacon violation
8. Ineffective approved purchasing
system
9. Misallocation of indirect costs
10. Falsify QA records

Qui Tam Road Map
• Relator files complaint under seal
• Department of Justice investigates and decide whether to intervene
• DOJ often uses Civil Investigation Demands to investigate
• DOJ goal is to make decision in nine months
• If DOJ declines – files a notice of non-intervention
  --DOJ can intervene at later time
  --DOJ declination rate is approximately 75%
  --Relator free to pursue law suit unless DOJ moves to dismiss
• If DOJ intervenes
  --DOJ runs the litigation
  --DOJ often files new complaint with additional FCA allegation

FCA: A “Profit Center”
The Whistleblower gets:
• 25% if the government intervenes
• 30% if the government does not intervene
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Would The Federal Government Tolerate Incentivizing Federal
Employees Being Disloyal? Why should industry?


Dr. LaCorte... $38M in Qui Tam Booty
Dynamics Of A Qui Tam Lawsuit
1. Relator
2. DOJ
3. Agency

Strategy Tip For Vendors
If a qui tam suit has been filed, do everything possible
to dissuade DOJ from intervening.

Significance On No Government Intervention
• If Government intervenes, most verdicts favor the Government
• If Government does not intervene, most verdicts favor Defendant
• Indicative of not being in Government “cross-hairs”
• Relator likely to have less litigation resources

FCA Is “Big Bucks”
The Department of Justice recovered nearly $6 billion from False Claims Act Cases in the Fiscal Year of 2014.

The Antivenom:
An Effective Corporate Compliance Program
 

Bad Things Happen to Good Companies

FAR § 52.203-13
FAR § 52.203-13 is a required clause if the value of the
contract is expected to exceed $5,000,000 and the performance period is 120 days or more

Subcontractor Compliance Program
Must flow-down the FAR § 52.203-13 clause to subcontracts
that have a value in excess of $5M.
FAR § 52.203-13(d)

Code Of Business Ethics & Conduct
“Management must convey the message that integrity and ethical
values cannot be compromised, and employees must receive and
understand that message through continuous demonstration of words, actions and commitment to high ethical standards.”
DCAA Audit Guidance

Gifts To Government Employees
“An employee may accept unsolicited gifts having an aggregate market value of $20 or less per source per occasion, provided that the aggregate market value of individual gifts received from any one person under the authority of this paragraph shall not exceed $50 in a calendar year.”
5 C.F.R. § 2635.204(a)

DCAA Audit Guidance
“Verify the existence of a written code of conduct and review the contents to ensure it addresses ethical business practices, conflict of interest, and expected standards of ethical and moral behavior. The code should cover dealings with customers, suppliers, employees, and other parties”

Available To Employees
• Provide copy to existing and new employees
• Document receipt of copy in employee HR file
• Post on company website

Code Of Business Ethics Training
• Must be “suitable to the size of the company and extent of its involvement in Government contracting.”
• Document attendance
FAR § 3.1002

Timely Disclose
“The Contractor shall timely disclose to the agency Office of the Inspector General, with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or
subcontractor of the Contractor has committed—

(A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or (B) A violation of the civil False Claims
Act (31 U.S.C. 3729-3733)

When Does The Duty End?

“The disclosure requirement for an individual contract continues until at least 3 years after final payment on the contract.”
FAR § 52.203-13(c)(3)(F)

The term “timely” recognizes that a contractor may conduct an internal investigation for purposes of determining if there is “credible evidence” of enumerated misconduct.

Full Cooperation Requirement

“Means disclosure to the Government of the information sufficient for law enforcement to identify the nature and extent of the offense and the individuals responsible for the conduct.”
FAR § 52.203-13(a)

“It includes providing timely and complete response to
Government auditors’ and investigators’ request for documents and access to employees with information.”
FAR § 52.203-13(a)

DCAA Audit Guidance
• “Request a copy of any disclosures”
•“Verify that the contractor complied with their policy and procedures”
• If deficiencies are identified, notify the DCAA Justice Liaison Auditor

Overpayments
“[I]f the contractor becomes aware that the Government has overpaid on a contract financing or invoice payment, the contractor shall remit the overpayment amount to the Government.”
FAR § 3.1003(a)(3)

Commercial Item
• Has been sold, leased, or licensed to the general public
• Has been offered to the general public
• Evolved from an item sold to the general public
• Is a modification of an item sold to the general public
FAR § 2.101

Awareness
Requires periodic training “and otherwise disseminating information” on “Contractor’s standards and procedures and other aspects of Contractor’s business ethics awareness and compliance program and internal control system”
FAR § 52.203-13(c)

“The training conducted under this program shall be provided to the Contractor’s principals and employees, and as appropriate, the Contractor’s agents and subcontractors.”
FAR § 52.203-13(c)(1)(ii)

Awareness Training
• “Verify that the business ethics awareness and compliance program includes an ethics training program for all principals and employees, and as appropriate, the contractor’s agents and subcontractors”

• “Selectively test this control by evaluating training program materials and training records of completion”
DCAA Audit Guidance

Compliance Program
• “Standards and procedures to facilitate timely discovery of improper conduct”
• “Ensure corrective measures are promptly instituted and carried out”
FAR § 52.203-13(c)(2)(i)

“Such compliance and ethics program shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct. The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.”
Federal Sentencing Guideline §8B2.1.

• One-size-fits-all type programs generally are ineffective
• Risk assessment is essential-- Emphasis on gifts to government official inappropriate when industry has history of other problems
OECD Guidance On Internal Controls

Compliance Officer
“Assignment of responsibility at a sufficiently high level and adequate resources to ensure effectiveness of the business
ethics awareness and compliance program and internal control system.”
FAR § 52.203-13(c)(2)((ii)(A)

Contractor is required to perform a due diligence to avoid selecting a compliance officer who has “engaged in conduct that is in conflict with the Contractor’s code of business ethics and conduct. “
FAR § 52.203-13(c)(2)((ii)(C)

Compliance Program
Must have “an internal reporting mechanism, such as a hotline, which allows for anonymity or confidentiality, by which employees may report suspected instances of improper conduct, and instructions that encourage employees to make such reports.”
FAR § 52.203-13(c)(2)

Requires “disciplinary action for improper conduct or for failing to take reasonable steps to prevent or detect improper conduct.”
FAR § 52.203-13(c)(2)(ii)(F)

DCAA Audit Guidance
“Verify that the contractor includes the substance of FAR § 52.203-13 when appropriate, in its subcontracts”

Internal Control System
Must periodically review the effectiveness of the company’s business practices, procedures, policies, and internal controls for compliance with the code of business ethics and conduct including “especially if criminal conduct has been detected”
FAR § 52.203-13(c)(2)

“Ascertain if the contractor has taken the necessary corrective actions to protect the Government’s interests. If the contractor has not taken the appropriate corrective action, the auditor should report this as an internal control deficiency.”
DCAA Audit Guidance

“Verify that the contractor’s policies and procedures provide for cooperation with any Government agencies responsible for audits, investigations, or corrective actions.”
DCAA Audit Guidance

Principal
“Means an officer, director, owner, partner, or a person having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a division or business segment; and similar positions).”

Possible Consequence
“A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a significant overpayment.”
FAR § 3.1003(a)(3)

A factor that a debarring official should consider is “whether the contractor had an effective standards of conduct and internal control system in place at the time….”
FAR § 9.406-1(a)(1)

Final Thought
“An ethics and compliance program, and internal controls, that are only on paper -- i.e., that sit on a shelf without being implemented and becoming a part of the contractor’s culture -- are not only a waste of an important opportunity but also are dangerous.  In the event of future wrongdoing, the contractor will be judged against the standards set forth in the ethics and compliance program, and internal controls.”
ABA Guide on Suspension & Debarment (2002) at 142
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