What is False Claims Act Procurement and Pricing Fraud?

What are the fact patterns involved in false negotiation or defective pricing cases?

The Government’s contracting process is governed by the principles outlined in the Truth in Negotiations Act (sometimes referred to as “TINA“). All Government contracts that involve negotiated pricing (rather than, for example, catalog pricing or competitive bidding) usually require compliance with the Truth in Negotiations Act. The TINA broadly requires that Government contractors be honest and truthful with the Government and disclose the actual costs of providing a good or service. These negotiations must be based upon accurate cost and pricing data. Otherwise, the Government will rely upon this data and pay too high a price for the goods or services, resulting in an unreasonably high rate of profit for the contractor.

The Government often requires cost and pricing information in negotiated or “sole-source” contracts because there is no "market" among dozens of competitors for the specialty goods the Government is procuring. The TINA exists because the Government needs to be able to rely on the accuracy of contractor information.  It is not always possible for a Government contracting officer to simply go to K-Mart, like a normal consumer would, and determine what the “market” price is for the specialized products it procures. That is, there are not many American businesses competing to make stealth bombers, amphibious armored jeeps, cruise missiles, and aircraft carriers. In some instances, the highly specialized nature of Government items may result in a single company being the only manufacturer or “sole source” of the product. Moreover, a Government contracting officer may not have any particular technical training, background, or education about the type of product or service being bought.  Thus, for a variety of reasons, federal law requires that the contractor fully and accurately disclose its cost and pricing information to the Government.

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What kinds of cases involve lack of compliance with contract specifications?

Two types of cases involve lack of compliance with contract specifications. The more traditional case involves delivering a substandard part, as in a product substitution case. The contract may require, for example, compliance with testing requirements in a standard Military Specification set forth by number and paragraph in the contract. Failure to test or failure to test in compliance with the contract’s Mil Spec requirements would likely result in the submission of false claims to the Government.

The second type of case involves a wide variety of situations wherein a contractor may fail to fulfill certain Government contract requirements. Each Government contract contains pages of requirements that might appear to have no particular effect on how a product or service is provided to the Government. That is, the contracts require that the contractor promise compliance with a wide variety of national laws and policies. Among the provisions found in Government contracts are those requiring compliance with the Service Contract Act, Walsh-Healy Act, Clean Air and Clean Water Acts, Buy American and Trade Agreements Acts, Anti-Kickback Act, etc. Said otherwise, the Government requires that its contractors abide by the law in producing and delivering goods and services that are paid for with taxpayer dollars. Thus, a contractor providing personal services must fulfill the minimum/prevailing wage and employee benefits provisions required by the Service Contract Act. (See Lugbill, Ann, et al., “The False Claims Act: Holding Employers Accountable for Workplace Rights,” Employee Rights Quarterly (Aspen, Autumn 2000)).

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What is a product substitution case?

The term “product substitution” is broad. These cases generally involve the failure to deliver the service or product that the Government ordered.  Product substitution cases encompass everything from a product that is technically deficient and will not fulfill its intended purpose, like an aircraft that will not fly, to a personal services contract that was technically fulfilled, but not rendered in compliance with all the contract specifications, like those requiring compliance with labor and employment laws or health and safety requirements.  Another example of a product substitution case is where the Government orders a pick-up truck with a V-8 engine, but instead receives one with a V-6 engine.  All of these instances involve a failure to comply with contract specifications.

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