Contractors see rise in fraud counterclaims.Government contract fraud counterclaims are on the rise, and court decisions increasingly are recognizing fraud liability. The government may assert counterclaims seeking setoffs based on a special pleas in fraud, under the False Claims Act or the Contract Disputes Act. Fraud counterclaims at the Court of Federal Claims do not require a contracting officer's final decision and monetary relief owed to the government may exceed a contractor's original claim. Filed in response to contractor claims or requests for other financial relief, government fraud claims can ravage a company's bottom-line. Given this power and potential impact, clearly, the ethical and legal considerations surrounding contract claims submissions are paramount. There are several recent Court of Federal Claims decisions involving government counterclaims for fraud. Contractor claims and appealing contracting officer A US military officer or civilian employee who has a valid appointment as a contracting officer under the provisions of the Federal Acquisition Regulation. The individual has the authority to enter into and administer contracts and determinations as well as findings about such contracts. denials have always been significant business decisions, for customer relationship reasons, and also given the time and money costs of preparation and prosecution. The courts' increasing receptiveness to government fraud claims adds a new dimension that must now be considered. During the last fiscal year, successful government fraud counterclaims severely impacted several companies in fines and claims forfeitures. For example, in Daewoo Engineering and Construction Ltd., the court assessed $50 million in damages under the Contract Disputes Act for knowingly false claims. The court, charging "gamesmanship games·man·ship n. 1. The art or practice of using tactical maneuvers to further one's aims or better one's position: ," pointed out that Daewoo "did not expect to find itself in court trying to justify its case" and instead went for simple payment of a negotiated amount of its claim, and concluded that this "shoot first" approach to claims submission deserved a $50 million message. The court found that Daewoo violated the False Claims Act and the Contract Disputes Act. In another case, Morse Diesel International, Inc., a government counterclaim A claim by a defendant opposing the claim of the plaintiff and seeking some relief from the plaintiff for the defendant. A counterclaim contains assertions that the defendant could have made by starting a lawsuit if the plaintiff had not already begun the action. alleged that Morse Diesel was apparently "floating" payments for bonds and submitted "paid" invoices before they were actually paid, under a contract requiring progress payment applications and certifications, but only after the company had made the payments itself. The court found that Morse Diesel payment applications were false, and that some claims were inflated to include rebate amounts for which the government was entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to credit. Under its fixed-price contracts, while Morse Diesel may not have netted more in government payments than it otherwise would have, premature submittals cost the company more than $53 million in potential claims against the government, which the Court deemed to have been forfeited for·feit n. 1. Something surrendered or subject to surrender as punishment for a crime, an offense, an error, or a breach of contract. 2. Games a. . A third example, M.A. DeAtley Construction Inc., finds the government accusing M.A. DeAtley of submitting a false certified See certification. claim with the Department of Transportation for "added work" that should not have been considered additional work under the contract. There, the contract required M.A. DeAtley to lay a specific type of rock as a foundation. While laying rock from a government-designated source, M.A. DeAtley found that the rock failed to satisfy contract standards. The government would not accept a credit and allow the company to leave the rock already laid, and required the company to replace the rock. While this may sound like a case where two reasonable parties may disagree, instead of a fraudulent claim by one party, the Court would not grant M.A. DeAtley's motion to dismiss the government's fraud claim because it found it is possible that the government ultimately could win on its fraud claim. These cases make clear that companies must recognize that government claims are serious business and must be flagged as high risks that deserve vigilance VIGILANCE. Proper attention in proper time. 2. The law requires a man who has a claim to enforce it in proper time, while the adverse party has it in his power to defend himself; and if by his neglect to do so, he cannot afterwards establish such claim, the and proactive planning. All corporate ethics and compliance programs need systems to check and double-check government submissions before final signature and submission. All corporate ethics policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental should include a best practices section for preparing and filing claims against the government. A modest investment in time and money, preparing and training on a process, will reduce the long-term risk of defending government civil false claims, suspension and debarment de·bar tr.v. de·barred, de·bar·ring, de·bars 1. To exclude or shut out; bar. 2. To forbid, hinder, or prevent. actions, and even criminal actions, which all impact profits, and can be fatal to a company. Claims that are accurate are far more likely to be paid, to say nothing as to good government relations, and future business. Claims impact a company's overall financial performance. Recent case law covering government fraud claims should be understood, with an eye toward a rigorous review of internal corporate claims processes. The law has always barred the knowing submission of false claims with the intent of defrauding or deceiving the government. The standard for certified claims, however, has become considerably more rigorous. No longer is it sufficient to submit what are viable contentions, where the "backup" or systems will not permit verification of a claim's accuracy. In light of recent cases, even with good intentions, it would be folly to file claims to the government, and thereafter determine the details that support that claim. The time and money costs of that approach, responding to investigations and defending allegations of fraud, are simply too great to permit. NDIA NDIA National Defense Industrial Association NDIA New Doha International Airport (Qatar) ETHICS COMMITTEE ethics committee A multidisciplinary hospital body composed of a broad spectrum of personnel–eg, physicians, nurses, social workers, priests, and others, which addresses the moral and ethical issues within the hospital. See DNR, Institutional review board. Joe Reeder, Chairman Attorney, Greenberg Traurig Greenberg Traurig LLP is an international law firm with approximately 1,700 attorneys and governmental professionals in 29 locations in the United States, Europe and Asia. Its presence in Europe is supplemented by strategic alliances with Olswang (offices in London, United Kingdom LLP LLP - Lower Layer Protocol Thomas Culligan Tofie M. Owen, Jr. Senior Vice President for Corporate Development, SAIC SAIC - http://saic.com. John D. Illgen Vice President, Northrop Grumman Northrop Grumman Corporation (NYSE: NOC) is an aerospace and defense conglomerate that is the result of the 1994 purchase of Grumman by Northrop. The company is the third largest defense contractor for the U.S. Simulation Technologies Corporation Lawrence Skantze Gem, USAF (Pet.) W. John Stoddart Executive Vice President and President Defense, Oshkosh Truck Corporation James McAleese Principal, McAleese & Associates Dr. Vincent J. Ciccone President & CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , RASco Inc. Steven Talkovsky Crowell & Morning LLP Richard D. McConn President, M International Inc. Jim D'Agostino and Sean Connolly are attorneys at the international law firm of Greenberg Traurig. The opinions expressed here are solely those of the authors and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee. |
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