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False Claims Act settlements often are business deals

Jul. 22, 2013 - 05:02PM   |  
By JIM McELHATTON   |   Comments

NASHVILLE, TENN. — The Justice Department regularly announces big settlements with federal contractors who agree to pay millions of dollars to settle False Claims Act cases alleging they bilked the government.

But for contractors, the decision on whether to settle a case or to fight accusations and go to trial can have less to do with guilt or innocence and more to do with practical business considerations.

“Often, it’s really just a cost-benefit analysis,” said Jonathan Cone, counsel at the Crowell & Moring LLP law firm. “In some cases, it’s actually more cost effective to settle a case rather than risk losing business with the federal government.”

Speaking at a session on contractor ethics at the National Contract Management Association conference here., Cone said investigative and legal costs alone can reach into the hundreds of thousands of dollars before a case even gets to trial. Plus, contractors can risk debarment or suspension.

Andy Liu, a partner Crowell & Moring, said attorneys always insist upon provisions in any settlement deal indicating that the client contractor denies the allegation that gave rise to the case.

Under the False Claims Act, the government can sue to recoup funds on its own or intervene in cases filed by whistleblowers, who can share in any recovery to the government.

Among other trends in False Claims Act cases, Cone said the government can initiate or intervene in cases involving “implied certifications,” citing the Lance Armstrong doping scandal as one recent and prominent example.

“He was on Oprah and admitted taking banned substances,” Cone said. “Less well known is that the United States is suing him under the False Claims Act because of that.”

Armstrong had a sponsorship deal with the U.S. Postal Service that did not specifically bar the cyclist from taking performance enhancing drugs, but it did say he had to follow the rules for international cycling, which clearly ban doping.

“So the government’s theory of the case, then, is that each time he requested money from the Postal Service, he’s implying he’s in compliance with his contract and that makes his request for money false,” Cone said.

While the lawsuit has made national headlines because of Armstrong’s fall from grace, the theory behind the case also offers a cautionary tale to contractors who do business with the government.

“What we’re talking about here is every time you’re submitting an invoice, you risk the government or relator arguing that you’re ... certifying that you’re in compliance with your contract, material regulations and statutes,” Cone said.

“So the government can say, ‘Well, you were submitting those invoices and yet you were breaching your contract.’ ”

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