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construction claimsIn Lodge Construction, Inc. v. United States, the US Court of Federal Claims (“COFC”) prefaced its 46-page opinion by stating: “This case should serve as a cautionary tale to government contractors.”[1] Our ears perk up any time we read that kind of admonition in a published decision. The Lodge holding is, indeed, loaded with lessons on what to do, and what not to do, when presenting Contract Disputes Act (“CDA”) claims to the government. In particular, federal construction contractors and their performance bond sureties should take heed of the court’s holding in this highly-illustrative fraud case.

Background of the case

In 2010, the Army Corps of Engineers (“Government”) awarded Lodge Construction (“Lodge”) a fixed-price contract to rehabilitate a levee in Florida. To accommodate subsurface work, Lodge designed and constructed a temporary cofferdam based on a geotechnical site inspection and analysis furnished by the Government. The Government accepted Lodge’s final cofferdam design in July 2011. In March 2012, however, water breached two sections of the cofferdam’s sheet pile wall, after which the Government retroactively disapproved of Lodge’s cofferdam design. The Government requested that Lodge submit a new sheet pile design by May 29, 2012.
Continue Reading Fraud and Forfeiture: Cautionary Tales of a Construction Claim Gone Wrong

surety liability FCA constructionThe federal Miller Act requires government construction contracts over $100,000 to be bonded. This process involves insurance companies, known as “sureties,” who issue payment or performance bonds to contractors, who in turn furnish the required bonds to the federal government. The bonds guarantee that the contractor will comply with the terms of the contract and perform as required. Although the sureties do not interact directly with the federal government, a recent decision from the US District Court in DC suggests that sureties could face liability where the bonded contractor violates the civil False Claims Act (“FCA”), 31 U.S.C. § 3729. In Scollick ex rel. United States v. Narula, No. 1:14-CV-01339-RCL, 2022 WL 3020936 (D.D.C. July 29, 2022) the court held, under the facts of that case, that the sureties had no knowledge of the fraud allegedly committed by the bonded contractor, and thus did not violate the FCA. Although the sureties escaped in this instance, this case demonstrates the expansive reach of the FCA and puts the insurance industry on notice that they are not immune from FCA liability.
Continue Reading Surety Liability Under the False Claims Act

The Fourth Circuit, in United States ex rel. Sheldon v. Allergan Sales, LLC, No. 20-2330, 2022 WL 211172 (4th Cir. Jan. 25, 2022) recently upheld the dismissal of False Claims Act (“FCA”) lawsuit brought by a quit tam relator (“Relator”) against his employer, Forest Laboratories, LLC (“Forest”) alleging that Forest engaged in a fraudulent price reporting scheme under the Medicaid Drug Rebate Statute (“Rebate Statute”).[1]

Notably, the Fourth Circuit adopted the US Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) in holding that the scienter element of the FCA is subject to an “objective reasonableness” standard, where a defendant can defeat FCA liability by establishing that its interpretation of the applicable statute or regulation was objectively reasonable and that no authoritative guidance from a court or agency could have “warned defendant away” from that interpretation. Just last year, the Seventh Circuit adopted this standard in U.S. ex rel. Schutte v. SuperValu Inc., joining the Third, Eighth, Ninth, and DC Circuits in holding the same.

At issue in Sheldon was the reasonableness of Forest’s interpretation of the Rebate Statute in determining how it calculated certain discounts given to separate customers for purpose of reporting its “best price” to the government. The District Court dismissed the complaint on the basis that Forest’s reading of the Rebate Statute was “objectively reasonable,” there was no authoritative guidance to the contrary, and thus Forest did not act “knowingly” under the FCA. The Fourth Circuit affirmed.[2]
Continue Reading Fourth Circuit Adopts Objective Reasonableness Standard in Determining Scienter Element of the False Claims Act

Since the dawn of the historic COVID-19 relief packages, which have doled out approximately $2.6 trillion to date (with more to be spent), the federal government has made no secret of the fact that it intends to ferret out and prosecute any wrongdoing involving those funds. In addition to misappropriation of relief funds, the government has also gone after those attempting to capitalize on the COVID-19 pandemic by defrauding consumers and the government alike. A number of violators have already been uncovered and prosecuted. And the government continues to ramp up its efforts and stay true to its word.
Continue Reading More Enforcement is on the Way: The COVID-19 Fraud Enforcement Task Force

While most federal contractors are eminently familiar with the False Claims Act (“FCA”)—government’s most potent weapons for prosecuting false claims—the anti-fraud provision of the Contract Disputes Act (“CDA”) does not receive nearly as much attention in the headlines. CDA anti-fraud cases are rarer than FCA cases for a couple reasons. First, the government’s remedies under the CDA pale in comparison to the robust deterrents available under the FCA, which include five-figure fines (between $11,000 and $22,000 per claim) and potential treble damages.[1] Second, the government is limited to enforcing FCA fraud claims in the federal court system, which complicates matters when the government seeks to assert FCA counterclaims as leverage in cases pending in the Civilian Board of Contract Appeals or the Armed Services Board of Contract Appeals.[2]  Thus, case law addressing CDA anti-fraud claims is sparse; indeed the US Court of Appeals for the Federal Circuit has never issued a published opinion discussing such claims. Last month, however, emerged an anti-fraud decision in the US Court of Federal Claims (“COFC”) that may eventually find itself worthy of higher-level scrutiny.
Continue Reading US Court of Federal Claims Clarifies the Statute of Limitations for CDA Anti-Fraud Claims

Potential Outcomes and Implications for the False Claims Act

On March 19, 2019, Seyfarth’s Anthony LaPlaca and Teddie Arnold witnessed oral argument at the U.S. Supreme Court in a government contracts case that has major implications for future enforcement of the federal False Claims Act (FCA).[1] In Cochise Consultancy, the Court is asked to interpret the FCA’s statutes of limitations, which govern the time frame in which the government may initiate a civil false claim suit against a contractor.[2] While the Court will likely consider the case for several months before it issues any decision, the questions posed at oral argument seem to hint at how it will ultimately decide the issue.
Continue Reading The Supreme Court Holds Argument in Cochise Consultancy