Builders and Contractors Exchange
Weekly Bulletin: 22 AUG 2008
The False Claims Act: From Lincoln To Allison
In a recent decision, the United States Supreme Court shed light on its interpretation of the False Claims Act (“FCA”), 31 U.S.C. §3729, which “imposes civil liability on any person who knowingly uses a ‘false statement to get a false or fraudulent claim paid or approved by the Government’. . . or who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid.” Also known as the “Lincoln Law,” the FCA was enacted following the Civil War, in an effort to combat fraud against the Government. Under the FCA, a private person may bring suit on the Government’s behalf (commonly known as “whistleblowing”), and receive a portion of any resulting monetary penalty.
Allison Engine Co., Inc. v. United States, decided June 9, 2008, is a recent FCA case arising out of a Navy contract for the construction of destroyers. In addition to the primary contract between the Navy and two shipyards, several subcontracts were involved: the shipyards subcontracted with Allison Engine Company to provide generator sets (“Gen-Sets”), Allison Engine, in turn, subcontracted with General Tool Company for assembly, who subcontracted with Southern Ohio Fabricators, Inc., to manufacture the Gen-Sets. Each Gen-Set was contractually required to be accompanied by a certificate of conformance (“COC”) “certifying that the unit was manufactured according to Navy specifications.” Suit was brought by two former General Tool employees, who alleged that Allison Engine provided the shipyards with false COCs, which, along with invoices for payment, were submitted by the shipyards to the Navy. The invoices, ultimately, were paid out of the U.S. Treasury.
In its opinion, the Supreme Court made important determinations about liability under the FCA:
• The false statement must have had a material effect on the Government’s decision to pay or approve the claim. This means that the subject matter of the false statement has to be important enough that, knowing the truth, the Government would have not made payment. When certifications are required by contract, such as in Allison, they are undoubtedly material to a decision regarding payment and acceptance.
• The defendant must have (1) made a false statement and (2) intended that the false statement be material to the Government’s decision to pay or approve the false claim. In other words, the defendant had to make a false statement with the purpose of inducing the Government to pay or approve a claim.
• The claim must be paid by the Government. “Paid by the Government” is not the same as “paid using Government funds.” So, in order to be liable, an FCA defendant has to intend for the Government itself to pay or approve the false claim. There is no FCA liability when a defendant’s claim is paid by a private entity using government funds.
• The FCA also applies to subcontractors on government contracts. The FCA does not require a false statement be submitted directly to the Government. A subcontractor who makes a false statement or submits a false claim to a prime contractor, intending for the prime contractor to use the statement or claim to obtain payment from the Government, faces liability under the FCA.
Anyone who does work for the Government, particularly subcontractors on government contracts, should be mindful of FCA liability when submitting claims and statements related to payment and acceptance of work. Remember the FCA every time you submit contractually-required test results or other certifications – and think about how much a single, falsified inspection report or certified payroll might cost you.
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.