I think the reason “deflate-gate” got so much press is that we, as Americans, believe in fairness in our sporting events. But there are more important things in our society in need of fair play than sports. You, as a government contractor, know that the government contracting process is one of them. In fact, as many are aware, the United States Code and the Federal Acquisition Regulations, which govern the process by which the Government purchases its goods and services, state that the policy of the United States is “with certain limited exceptions” that the Government provide “full and open competition in soliciting offers and awarding Government contracts.” 48 C.F.R. § 6.101 (citing 10 U.S.C. §2304 and 41 U.S.C. §253). In sum, as the U.S. Court of Federal Claims recently explained, the government contracting process should not occur in a manner that “violates the laws meant to guarantee fair competition in government procurements.” Sys. Application & Technologies, Inc., v. United States, 100 Fed. Cl. 687, 719 (2011), aff’d, 691 F.3d 1374 (Fed. Cir. 2012).
So, you are an honest contractor. But, what if your competitor is not? What if you are paying the prevailing wage on Davis-Bacon Act contracts, but your competitor low-bids to win because it knows that it will make the money up on the back end by underpaying its workers? Or, what if you are a legitimate small, woman-owned, minority, disabled, veteran business, but your competitor meets none of those classifications, lies about its status during the bidding process, and illegally wins contracts that you should have won? What can you do about it?
LOOK TO LINCOLN
Maybe it’s time to shift your focus to one of Abraham Lincoln’s great ideas: the False Claims Act, aka Lincoln’s Law or a qui tam action. During the Civil War, Lincoln grew tired of soldiers being harmed by contractors who stole money from the public or provided substandard goods. He came up with the idea that he would incentivize people to report crooks by providing those who reported fraud with a finder’s fee, which was a percentage of the fraudulently taken monies the Government recovered. And voilà, the False Claims Act was born.
The modern version of the False Claims Act allows any “person,” including companies or individuals, to initiate a civil lawsuit to report to the Justice Department any contractor who fraudulently obtains government money. So, when a contractor lies to obtain public funds, like your dishonest competitor, the False Claims Act kicks in. The False Claims Act also packs a powerful punch—triple damages plus penalties of $5,500 to $11,000 for each false submission to the Government. In this respect, your unscrupulous competitor can pay much more than what it bilked from the Government and you—a good deterrent from lying during the next bidding process.
Just like Lincoln’s version, the modern statute provides the “person” who reports the fraud with a finder’s fee, usually at least 15 percent but up to 25 percent of the money recovered. So, if the Government recovers $1 million, the whistleblower gets at least $150,000, but up to $250,000.
BAD BEHAVIOR DETERRENT
Importantly, reporting competitors’ fraud through the False Claims Act deters bad behavior. Possibly, the best indication of this is that False Claims Act defense law firms appear to be marketing themselves to contractors who have been reported by competitors for committing fraud. Additionally, there are plenty of successful False Claims Act cases against unscrupulous competitors. For example, take James Wagel, who sold Cardiolite, a drug similar to Myoview. Both drugs were used to help doctors see the blood flow in patients’ hearts for purposes of locating coronary heart disease. Mr. Wagel learned that Myoview was being promoted to doctors from its manufacturer as a drug that could be diluted to get more uses per vial. The practice was known as “blowing the vial.” While “blowing the vial” was cost-effective for doctors, it also was illegal and resulted in significantly higher false positive test results on cardiology reports. This caused numerous patients to have unnecessary tests performed on them—many of which were paid for on Medicare’s and Medicaid’s dime. Mr. Wagel’s reward for reporting this fraud, filing a False Claims Act case, and working with the Justice Department was $5.1 million.
Another example is Douglas Knisely, who owned a paper shredding business. Mr. Knisely learned that two large competitors were not shredding sensitive government documents to the required specifications. This was allegedly done so his competitors could resell the shredded paper to recycling companies to make an extra profit as the government requirements for shredding paper left it too thin to be recycled. Mr. Knisely’s company had not bid on “sensitive document” contracts because he did not own equipment that could shred to the specifications. He was actually concerned about the security risks posed as classified information might be retrievable if not properly shredded. The matter settled for over $1.1 million.
EXAMPLE CLOSE TO HOME
If you are still on the fence about the False Claims Act, then perhaps you might listen to the “mouths of babes.” My elementary-school-aged daughter recently told my wife that she had dropped a nickel from her lunch money and another kid took it, refusing to give it back. She explained that she told her teacher because otherwise nothing would be done to correct what happened. The teacher’s solution was that the bully pay her a dime. The bully has not bothered my daughter since. That pretty much sums up what Lincoln was trying to accomplish with the False Claims Act. So, is it time for you to go to the Justice Department so that you can “get your nickel back” and hopefully stop the cheating competitors from taking advantage of your honesty? The statute will only work if someone reports dishonest competitors. Shouldn’t that someone be you? ■
Editor’s Note: For those who may have missed “deflate-gate”, it’s a 2015 controversy in the National Football League concerning allegations that the New England Patriots used underinflated footballs in the playoffs so their quarterback, Tom Brady, could grip the football better and have an advantage over the opposing quarterback.
About The Author:
Brian J. Markovitz is a partner and a member of the Civil Litigation Group at Joseph, Greenwald & Laake, P.A. He represents employees who have been wrongfully terminated, suffered discrimination at work, or been retaliated against for reporting fraud or misconduct. He is one of the nation’s leading practitioners representing whistleblowers under the federal False Claims Act. He can be reached at or 301.220.2200.
Modern Contractor Solutions, April 2015
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