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Knowingly underbidding a federal contract could amount to a false claim, resulting in a claim under the False Claims Act

The recent 9th Circuit federal appeals case of Nyle J. Hooper vs. Lockheed Martin Corp. confirmed that a bidder could be subject to a false claims action under the federal False Claim Act (?FCA?) after knowingly underbidding a cost-plus bid.

The FCA (1 U.S.C. ??3729 et seq.) allows the government and/or third parties to file claims against bidders who make false claims for government funds. In Hooper, Lockheed bid on a space related contract, which was let out as a cost plus award fee contract, under which the contractor was reimbursed for costs incurred, and paid periodic ?award fees? based on performance

Bidders for the contract had to provide an estimate of costs as a part of their bid. Lockheed was awarded the contract after providing a bid estimate of $432.7 million, but ended up being paid over $900 million. A disgruntled Lockheed engineer whistleblower made a qui tam claim under the FCA, alleging Lockheed had intentionally underbid the project.

Lockheed filed a motion for summary judgment on the basis that their bid figure was simply an estimate of future costs, and not a direct claim for payment. Lockheed characterized its estimate to a mere opinion or prediction.

The court disagreed, citing other FCA cases establishing that carrying out a fraud-in-the-inducement against the government could amount to a false claim, and then held that knowingly underbidding on a contract was a form of a false claim under the FCA.

The court then examined the evidence of intentional underbidding presented by the qui tam claimant, which included evidence that Lockheed lowered its bid from initial estimates without regard to actual cost, and that Lockheed employees were asked by management to simply change the cost in the bid, even though the change in cost was not based on any engineering judgment. The appeals court ruled that this was sufficient evidence to overcome Lockheed?s summary judgment, and ordered that the claimant be allowed to proceed.

If found liable, Lockheed could be subject to an award of damages equal to the government?s losses resulting from the fraud (likely calculated by estimating what the government would have paid another bidder for the contract ? no easy feat), civil penalties, and a debarment from federal contracting.

This case highlights the perils of bidders and contractors playing ?fast-and-loose? with the numbers when seeking government funds during public works contracting.

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Have You Given Proper Notice of The Delay? California Appellate Court Permits Assessment of Liquidated Damages Due to Contractor?s Failure To Give Notice of Delay.
Posted by: Jonathan Bowne
January 03, 2012

In a recent case entitled Greg Opinski Construction v. City of Oakdale, 199 Cal.App.4th 1107 (2011) a California Appellate Court held that when a construction contract requires notice be given as a condition for getting an extension of time and notice is not given, the contractor cannot later claim that the delay was caused by the owner. This is noteworthy since it refutes prior precedent that allowed a contractor to assert that the liquidated damages should not be assessed since the public entity delayed the project during a period of owner caused delay.

This decision could have a significant impact on disputes concerning project delays and liquidated damages. While most sophisticated construction contracts include claim provisions relative to schedule extensions for non-contractor cause delays, these provisions are often time ignored by the parties. Many contractors operate under the assumption that regardless of the "fine print" in their contracts requiring notice of delay events, that ultimately a change order or favorable court judgment can eventually be secured so long as the contractor can prove that the owner (or non-contractor caused factors) caused the delay. The Opinski decision makes it clear that simply having the facts on your side is not enough, and that the technical requirements of the "fine print" claim provisions must be complied with.

See a more thorough article on this issue at our website, here.

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