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The False Claims Act, 31 U.S.C. § 3729 (a) (1), provides in
part that any person who “knowingly presents a false or
fraudulent claim for payment…to the United States Government
is liable to the United States Government for a civil
penalty…plus three times the amount of damages which the
government sustains[.]” As Morse Diesel International, Inc.
v. United States, 74 Fed. Cl. 601 (Fed. Cl. 2007), demonstrates
the United States will seek damages under the False
Claims Act for certifications for reimbursement of bond premiums
not actual paid and for certifications for reimbursement
of bond premiums inflated to include rebates received
from a surety.
In Morse Diesel, two companies formed a join venture (the
“Joint Venture”). In 1994 and 1995 the General Services
Administration (“GSA”) awarded four large contracts to the
Joint Venture for various projects. As required pursuant to
the contracts, one of the companies (“Company One”) obtained
a multimillion dollar bond line of credit upon which
the Joint Venture could draw. The surety agreed to pay fifty
percent (50 %) of its premium to Company One in exchange
for all of the Joint Venture’s business on the various projects.
In 1999 a GSA investigation report concluded that the Joint
Venture, in order to obtain payments for the bond premium,
had submitted false invoices and made several false certifications.
Additionally, the report concluded that the Joint Venture
had failed to credit the United States for the rebate from
the surety.
The Joint Venture thereafter filed numerous claims in the
Court of Federal Claims and filed an appeal with the GSA
Board of Contract Appeals of the GSA Contracting Officer’s
final decisions on issues related to the various projects. In
addition to filing answers to the various claims, the United
States filed several counterclaims asserting, among other
claims, a violation of the False Claims Act. Several of the
Joint Venture’s claims and the United States’ counterclaims
were consolidated in the Court of Federal Claims. Thereafter,
the United States filed a motion for summary judgment
on its claim under the False Claims Act.
In support of its motion for summary judgment on its counterclaims,
the United States argued that the Joint Venture
knowingly submitted false certifications in support of its
claims for
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reimbursement related to the costs for the bonds.
In addition, the United States argued that the Joint Venture
did not credit the rebate received from the surety to the
United States. In response the Joint Venture made several
arguments, including that the Joint Venture was not required
to credit the United States with any rebate until it actually
received the rebate amount from the surety. The Joint Venture
noted that any other interpretation requiring it to rebate
to the United States all price concessions made by suppliers
and subcontractors “would turn price competition on its
head[.]”
The Court of Federal Claims noted that the United States
was required to make progress payments after the Joint Venture
provided evidence of payment to the surety and that any
amounts requested by the Joint Venture were to be only for
performance in accordance with the terms of the contract.
Thereafter, the court found that the amounts requested for
reimbursement by the Joint Venture included amounts not
just for performance of the contracts at issue and that the
amounts requested for reimbursement were inflated to include
the rebate amount that was paid by the surety to Company
One. Therefore, the court held that the United States
had established by a preponderance of the evidence that the
Joint Venture’s application for progress payment for costs
associated with performance and payment bonds was false
and was knowingly submitted by the Joint Venture to get the
United States to pay a fraudulent claim in violation of the
False Claims Act. Accordingly, the court granted the United
States’ motion for summary judgment.
The False Claims Act prohibits a party from submitting a
claim to the United States for approval based upon false or
fraudulent information and provides for civil penalties in the
event a party is found to have done so. As Morse Diesel
demonstrates the United States will seek to enforce the False
Claims Act in situations where a contractor has failed to
provide the United States with a credit for a rebate received
and has falsely certified that amounts paid for bonds were in
fact paid for the bonds. As such all companies that deal
with the government should thoroughly review the accuracy
and completeness of all submittals for reimbursement made
to the United States.
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