Builders and Contractors Exchange
Weekly Bulletin: 01 June 2007
Be Aware Of Penalties Possible When Contracting With The Government
By: Stephanie Himel-Nelson
Contracting with the government can be serious business. The U.S. government, through anti-corruption laws such as the False Claims Act and the Anti-Kickback Act, has the means to prosecute contractors not following proper billing and documentation procedures. The recent case, Morse Diesel International, Inc. v. United States, 74 Fed. Cl. 601 (2007), is a strong reminder of the government’s power to enforce these laws.
In this recent case, MDI brought breach of contract actions against the government based on several construction contracts it was performing for GSA. The government counter-claimed against MDI, asserting violations of the False Claims and Anti-Kickback Acts. MDI and the brokerage firm Willis Caroon, were found to have engaged in fraudulent conduct under the contracts. MDI and WC apparently agreed that WC would give MDI’s parent company, Morse Diesel, Inc., half of the commissions it received on MDI contracts in exchange for WC’s future bonding business. The agreement encompassed the bonds for the GSA construction contracts at issue in this case. The Court of Federal Claims affirmed that this arrangement violated the Anti-Kickback Act because the government had no knowledge of the arrangement and received no financial benefit. WC would not have received any brokerage fees for MDI’s work but for MDI’s contracts with the government. In fact, the court found that a higher price for bond services was included in MDI’s contract as a result of the arrangement.
MDI has also requested that WC forward invoices marked as “paid” for bond premiums due before the payments had actually been made. MDI then sought reimbursement from the government. The Court of Federal Claims noted that “the submission by the contractor to the government of claims for reimbursement of ‘paid’ bond premiums that, in actuality, had not been paid to the bond producer constituted violations of the False Claims Act.” The court went on to find that MDI’s violations of the Anti-Kickback Act also constituted violations of the False Claims Act.
While this case is an extreme example, the lesson is to be up front with the government in your government contract dealings. If your contracts involve rebates to third parties, disclose them to the government and consult your attorney.
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.