Organizational Conflicts of Interest – Part 3: The Next Target for FCA Enforcement – Government Contracts, Procurement and PPPs

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In the first two parts of this series, we summarized what constitutes an organizational conflict of interest (“OCI”) in public procurement, and discussed the importance of OCI in the bid challenge arena. , you are now free from any harm caused by having an OCI, we now address potential post-award liability arising from undisclosed and unmitigated OCI. Contractors who have undisclosed and unmitigated OCI, which existed prior to award or arose subsequently, may face a variety of adverse outcomes – termination, suspension or exclusion from the contract, and liability for fraud under the False Claims Act (“FCA”). Remember that OCIs come in three forms:

  1. Unfair competitive advantage – when a contractor obtains confidential or proprietary government information not available to competitors

  2. Impaired objectivity – where performance of the contract could affect a contractor’s other financial interests

  3. Skewed ground rules – when a contractor helps design the statement of work or other tender requirements for a future procurement for which they ultimately submit a proposal

OCIs are often not easy to identify and can also be triggered by a company’s contractors. manage these OCIs and have an ongoing obligation to disclose if new OCIs develop during execution. Alternatively, contractors must certify that no OCI exists, and these certification requirements continue throughout the performance of the contract.

It is important to understand what creates potential OCIs and assess them properly for each procurement, as undisclosed OCIs can expose the contractor to potential FCA liability. For example, under the FCA’s fraudulent inducement theory, liability may arise where the government is able to demonstrate that the contract was obtained by fraud, such as by knowingly making false statements or false certifications during negotiations. The theory behind this type of FCA allegation is that the initial false certification taints the rest of the contract. Therefore, contractors can be held liable under the FCA for every payment claim they submit to the government as a result of false OCI certification, even if the contractor was not explicitly aware of the claim. OCI or specifically intend to defraud the government – under the FCA, reckless disregard for the truth and falsity of the OCI certification is sufficient to establish liability. The government likes this theory of liability in particular because liquidated damages and fines per claim can extend to every invoice submitted during the term of the contract.

Companies have already suffered CAF judgments based on OCI. In June this year, the government settled FCA’s OCI-related allegations against Cape Henry Associates (“CHA”), a small business owned by disabled veterans and specializing in workforce analysis , personnel analysis and training services. The government alleged that CHA failed to disclose multiple OCIs with its subcontractors on multiple government contracts. In one case, CHA hired a subcontractor in which one of CHA’s agents had an interest to perform work on a federal contract. The government claimed that this created an OCI, presumably because the CHA’s objectivity was impaired when it chose a contractor that would financially benefit one of the CHA agents. In another case, the CHA had subcontracted with an employee of its subcontractor, and that employee was simultaneously providing recommendations to the government client that could have impacted government funding for the CHA and approvals. of projects. In addition to CHA paying $425,000 in settlement, CHA could also face damage to its professional reputation, as well as administrative action, such as suspension and expulsion. The DOJ press release noted an impressive list of government entities involved in the investigation, including the DOJ’s Civilian Fraud Section, the Army CID, the GSA’s Office of Inspector General and the Naval Criminal Investigative Service.

In 2003, the 4th Circuit Court of Appeals upheld an FCA judgment against Westinghouse Savannah River Company for a similar subcontracting dispute. Westinghouse solicited bids and hired a subcontractor General Physics Corporation (“GPC”) to provide training services under the contract, certifying to the Department of Energy that there was no OCI. GPC has also certified to Westinghouse that it is not aware of any OCI in sourcing. However, one of GPC’s employees had helped draft Westinghouse’s request to the DOE for approval to enter into the subcontract, creating an unfair competitive advantage for OCI. The 4th Circuit upheld the district court’s ruling that Westinghouse’s OCI certification was false, that at least one employee knew it was false at the time of submission, and that the false certification was material to the DOE because that OCI certification is an important part of maintaining a fair bidding process. With respect to materiality, the court held that it did not matter that the DOE knew of the existence of the OIC and had investigated it. with GCP and still continued to fund the subcontract. (It is hoped that the proof that the fake OCI certification has been In fact not important for the government would go further in a post-Escobar Ultimately, the court determined that the government suffered no damages, but Westinghouse was still liable for penalties for each invoice submitted under the contract under a theory of fraudulent inducement.

Given the potential liability caused by OCI, contractors should pay particular attention to potential conflicts both internal and involving their subcontractors. When OCI-certifying, contractors should carefully consider their past and current government contracts that could create a conflict, as well as contracts owned by their subcontractors, subsidiaries, and affiliates, or risk potentially serious liabilities.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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