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Implied Certification: A New Trap for Unwary Federal Contractors

April 05, 2018

The False Claims Act (“FCA”),[i]  has been around since 1863 and has been repeatedly amended by Congress.  The FCA can result in liability to the government for treble damages, plus civil penalties up to $10,000, for each false claim for any person who knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the government.[ii] Because a “claim” against the government includes any request for the payment of money, any invoice or application for payment under any contract with the government for supplies or services, including construction, constitutes a “claim” under the FCA even though a routine requests for payment is not considered to be a “claim” under the Contract Disputes Act of 1978 (“CDA”).  In 2016, the United States Supreme Court, in Universal Health Services v. United States ex. rel. Escobar,[iii] held that, under the theory of “implied certification,” a contractor can be liable under the FCA “when [it] submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement.” [iv] The impact of Universal Health is that it is now possible for a contractor providing supplies, services or construction to any agency of the federal government to find itself liable to the government for submitting a false claim where the contractor knowingly failed to disclose material information about the goods or services it has provided.  This also applies to the contractor’s failure to comply with a requirement of the contract, each time it bills the government for monies due under the contract.

A recent case where the implied certification theory was applied to support a finding that a contractor had submitted a false claim is United States v. Triple Canopy, Inc.[v] In that case, the United States Court of Appeals for the Fourth Circuit found Triple Canopy to be in violation of the FCA under the implied certification theory because, when it submitted its claim for payment under its contract to provide security services at an airbase in Iraq, Triple Canopy failed to disclose to the government the fact that the guards it provided could not meet the marksmanship requirements of its contract. Citing Universal Health[vi], the court said “Guns that do not shoot are material to the Government’s decisions to pay as guards that cannot shoot straight.”[vii] The United States District Court for the Eastern District of Virginia, in the very similar case of United States ex rel. Beauchamps v. Adadi Training Ctr. Inc.,[viii] reached the same conclusion.

In Ab-Tech Constr. v. United States,[ix] Ab-Tech, a minority-owned small business enterprise was awarded a subcontract by the Small Business Administration for the construction of an automated data processing factory for the United States Army Corps of Engineers. Ab-Tech submitted a claim against the government for an increase in the contract price allegedly caused by defective government specifications. Ab-Tech had entered into an agreement with a company by the name of Pyramid.  The agreement was titled as an indemnity agreement but was much more that an indemnity agreement, because it gave Pyramid a substantial voice in the management of the contract and co-equal authority with Ab-Tech over the receipt and disbursement of contract funds, all of which was in violation of Ab-Tech’s 8(a) status with the SBA. Ab-Tech was requested by the SBA to provide it with certain documents, but Ab-Tech failed to disclose its agreement with Pyramid.   Based on the finding by the court that Ab-Tech was guilty of submitting a false claim in connection with its claim for an increase in the contract price, the government was awarded $220,000 due to Ab-Tech’s failure to disclose its agreement with Pyramid at the time it requested an increase its contract price, and Ab-Tech’s claim for an increase in the contract price was forfeited.

A false claim under the FCA can also arise when a contractor seeks reimbursement for costs under a cost reimbursable contract and knows such costs are unreasonable and not allowable under the FAR because a contractor impliedly certifies that its costs for which it seek reimbursement are reasonable and allowable under the FAR[x]

The cases discussed above illustrate some actual situations where a violation of the FCA occurred simply as a consequence of a contractor requesting payment from the government when the contractor knowingly did not disclose its failure to comply, with a statutory or regulation requirement or a material requirement of the contract.

Because the courts have said that an implied false certification can result in a violation of the FDA when a contractor requests payment of money by the government but fails to disclose information about its non-compliance with material contractual requirements, an FCA false claim can be found to exist where, at the time a contractor submits an invoice for payment, it is aware that some of its work does not comply with the terms of the contract, such as where, in a contract for construction, the work fails in a material respect, to meet the requirements of the contract specifications.

The government’s burden of proof for a false claim under the FCA is much less than the burden of proof for common law fraud against the government. All that must be shown is that a contractor knowingly failed to disclose a material non-compliance with a statutory, regulatory or contractual requirement when requesting the payment of money. A non-compliance or non-disclosure matter is considered material when the matter is material to the government’s decision to make payment to the contractor.

The non-disclosure of a failure to meet a contractual requirement can be the most troublesome, particularly in contracts for construction.  Disputes over whether the work complies with the terms of the contract are normal and the issues of whether an item of work meets the terms of the contract, or even whether it is a requirement of the contract, are a part of the normal construction process and are often the subject of claims and disputes subject to the CDA. And, unlike contractor claims under the CDA, where a contractor must certify any claim in excess of $100.000, the implied certification theory can result in a false certification of a routine payment request even though no certification is required under the CDA for routine requests for payment or for claims where the amount of the claim is less than $100,000.

The facts in a case decided under Virginia law by the Virginia Supreme Court provides a good illustration of where a false claim could have resulted if the contract in that case had been a contract with the federal government and involved a similar factual scenario. In Richmond Metro Auth. V. McDevitt St. Bovis,[xi] McDevitt, the contractor, had a contract to construct the New Parker Field baseball stadium in Richmond. One of the requirements of the contract was that grout was to be injected into the precast/post tensioned concrete structural members (“bents”) for the cantilevered roof and upper concourse seating. Notwithstanding the fact that McDevitt certified in its payment applications that its work had been completed in accordance with the Contract Documents, McDevitt failed to disclose that many of the bents had no grout or insufficient grout and McDevitt had sealed the empty bent tube openings to give the false impression that the conduits were filled with grout. In its suit against McDevitt, the Richmond Metropolitan Authority (“RMA”) claimed, among other things, that McDevitt had committed a fraud because it concealed the fact that the grout had not been injected within the tubes as required. Nevertheless, the Court held that, because the only duty McDevitt owed to RMA arose solely by virtue of the contract between the parties, the failure to inject the grout, as required, was only a breach of contract and did not constitute a fraud even though McDevitt had certified in its payment applications that its work complied with the contract when it knew it did not. If this case had involved a federal contract, it is certainly reasonable to conclude that the government would have a valid claim against the contractor under the FCA because of McDevitt’s concealment and failure to disclose that grout had not been injected into the bent tubes as required by the contract specifications.

If a part of your business is contracting with the federal government, or any agency thereof, for goods and services, including construction services, before submitting an invoice for payment, or any other request or claim for the payment of money, give careful consideration to whether you have knowledge of any failure to comply with any law or regulation or requirements of your contract, which could materially affect the government’s decision to honor your request for payment. Be cognizant of the fact that a failure to disclose any such failure could result in a substantial liability to the government under the FCA and even a forfeiture of your right to payment and any claim you may have against the government. Do not rely upon your belief that the FCA applies only to a false certification of a claim under the CDA.

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[i] 31 U.S.C 3728

[ii] 31 U.S.C. §3729(a)

[iii] 136 S. Ct. 1989, 195. Ed. 2d 348 (2016)

[iv]136 S. Ct. at 1995.

[v] 857 F.3d 174 (4th Cir. 2017)

[vi] 136 S. Ct at 2001-02

[vii] 857 F 3d at 175

[viii] 220 F. Supp. 3d 676 (E.D.Va. 2016),

[ix] 31 Fed. Cl. 429 (Fed. Cl. 1994

  1. United States v. Dyncorp Int’l, LLC , 253 F. Supp. 3d 89 (D.C.D.C. 2017)

[xi] 256 Va. 353, 507 S.E. 2d 334 (1998)

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