Builders and Contractors Exchange
Weekly Bulletin: 21 Nov 2005
The Need For Compliance Programs
By: William Dozier
A Federal Court decision demonstrates the need for Government Contractors to have a Compliance Program in place and to periodically test that Program to ensure their employees are performing properly. The Court in that case ruled that the company was liable for treble damages for the false claims submitted by a low level employee.
The case involved a company who had contracted with the Air Force to rehabilitate family housing units at Ellsworth Air Force Base. One provision of the Contract indicated that asbestos would not be encountered but instructed the Contractor to immediately notify the Contracting Officer and not to disturb any asbestos that was encountered. During performance, asbestos was encountered, but the Contractor's Supervisor did not advise the Government and specifically instructed other employees to hide the presence of the asbestos. Ultimately, one of the Contractor's employees filed a Qui Tam suit against the Contractor. Qui Tam actions will be considered in detail in a future article, but such actions allow an individual to bring a law suit in the name of the United States against a Government Contractor. The individual who brings the suit is called the Relator and shares in any financial recovery that the United States obtains either by settlement of after trial. "Whistleblowers" frequently file such suits and recover substantial sums of money from their former employers.
In this case, the defendant Contractor moved for Summary Judgment and argued that none of the executives of the company knew the circumstances of the false claims or participated in any of the actions of the employees to hide the presence of the asbestos. The Court held that, under the False Claims Act, liability would be imputed to the employer even though it did not know or ratify the acts of its employees if the employee had the apparent authority to bind his employer. The fact that the Supervisor's acts were specifically against company policy did not stop the company from being liable for his actions.
This case highlights a significant risk for Government Contractors. It means that Government Contractors could potentially be liable even though they not only did not know of the misdeeds of the employees, but in fact actively sought to preclude them. The Court in this case held the company liable, "regardless of the principal's (company's) knowledge, culpability, policies or efforts to restrain the employee's bad acts."
Accordingly, Government Contractors must have a Compliance Program that provides guidance and training to all of its employees about their responsibilities while working on Government Contracts. Additionally, there needs to be an active and ongoing internal auditing procedure to test the company's system to ensure that these policies are being followed. Failure to have such a Compliance Program could lead to situations where employees take actions that are not appropriate and which expose the company to investigations, fines, penalties, False Claims Act suits, and possibly suspension and debarment from government contracting.
Vandeventer Black welcomes questions on how to set up an effective Compliance Program and to monitor established Programs to ensure their effectiveness.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.