U.S. District Court Permits Qui Tam Case

July 30, 2019

Court Alleging Noncompliance with DoD Cybersecurity Requirements to Proceed

By: John Ford, Senior Consultant and Neal Beggan, Principal

The civil False Claims Act (“FCA”) permits a person to file a civil suit alleging that another has submitted a false claim upon the U.S. government. Such suits are brought on behalf of the government and the person bringing the suit. These are called qui tam suits and the person bringing the suit is known as a relator.

In United States ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., No. 2:15-cv-2245 WBS, the relator alleged that Aerojet had violated two provisions of the statute by its knowing non-compliance with various versions of the Defense Federal Acquisition Regulation Supplement (“DFARS”) 252.204-7012 and the National Aeronautics and Space Administration (“NASA”) Federal Acquisition Regulation (“FAR”) Supplement (“NFS”) 1852.204-76 prior to the award and during the performance of various contracts. In this regard, DFARS 252.204-7012 requires contractors to “provide adequate security on all covered contractor information systems.” What constitutes adequate security is described in the clause. Similarly, the NFS clause requires contractors to “protect the confidentiality, integrity, and availability of NASA Electronic Information and IT resources and protect NASA Electronic Information from unauthorized disclosure.” This is done by complying with the requirements “identified in the Applicable Documents List (“ADL”) provided as an attachment to the contract.” The relator alleged that Aerojet knew that it did not comply with all applicable requirements of the clauses when it submitted proposals and performed on the contracts. Further, the relator alleged that Aerojet did not make a full disclosure of its non-compliance to the contracting officer prior to award of the contracts.

In response to the qui tam action, Aerojet filed a motion to dismiss the complaint alleging that the relator had failed to state a cause of action. That is legal jargon for an assertion that the relator had not alleged facts in its complaint that were sufficient to establish potential FCA liability, i.e., a knowing submission of a false claim. Such motions are hard to win because all the assertions in a complaint are presumed to be true for purposes of a motion to dismiss. Here, the court held that the presumed true facts asserted in the complaint were sufficient to establish potential liability on the part of Aerojet. Thus, the motion to dismiss was denied. As a result, the relator will be allowed to go forward and attempt to show that Aerojet did in fact violate the FCA.

This case raises two significant issues for contractors.

  1. Pre-Award Issue

First, is the pre-award issue of a contractor making potentially false or misleading statements that induce the government to award a contract to the contractor. Under the FCA, if a contractor knowingly makes a false or misleading statement of a fact that is material to the government’s decision to award the contractor a contract, every request for payment made under that contract can be considered a false claim. Here, an alleged misleading statement made by Aerojet was its disclosure of some, but not all, of its non-compliances with the DFARS and NFS requirements to the contracting officer. When ruling on the motion to dismiss, the court could not say whether this failure to make a full disclosure caused the government to issue the contracts in question or whether the contracts would have been awarded even if a full disclosure had been made. As a consequence, Aerojet will be forced to proceed further this litigation.

The lesson for contractors from this is that if they do not meet all the requirements of a solicitation, which would include the ability to comply with all the clauses in Section I of the solicitation, they should make a full disclosure of this inability and describe what efforts they will make to be in compliance and a time table for compliance. In this regard, contractors should note that FAR 15.305 states that proposal evaluation “is an assessment of the proposal and the offeror’s ability to perform the prospective contract successfully.” For FCA purposes, this is something broader than a mere assessment of whether the contractor can make timely delivery of a conforming product or service at the price proposed. However, contractors should note the general responsibility standards listed in FAR 9.104-1. There, the FAR states that a contractor cannot be determined non-responsible if it has the ability to obtain the resources necessary to perform the contract. Thus, if a contractor cannot completely comply with the terms of the solicitation when it submits its proposal, the contractor should inform the government of this fact.

  1. Implied Certification

The second issue is what is known as implied certification. Under this legal doctrine, whenever a contractor submits a request for payment under a contract, the contractor gives an implied certification that it is in compliance with all material terms of the contract. This is based on the theory that a contractor is not entitled to be paid unless it complies with all the material terms of the contract. Thus, even when a contractor asks for payment of the contract price for conforming supplies or services accepted by the government, if the contractor knows, as described above, that it is not in compliance with all material terms of the contract, the request for payment constitutes a false claim. Thus, contractors need to be aware that in performing a contract, it is not sufficient to provide the government with conforming supplies or services at the price stated in the contract. Instead, before billing the government for such supplies or services, contractors need to assure that they have complied with all the material terms of the contract. If contractors do not, they may potentially wind up in the same position as Aerojet did in this case.

If you have any questions concerning your tools for complying with the terms of your government contracts, do not hesitate to contact John Ford or Neal Beggan at Cherry Bekaert for assistance.

There are some points concerning a contractor’s potential liability under the FCA that need to be made clear. Under the FCA, a contractor is only liable for knowingly submitting a false claim. For these purposes,

(1) the terms “knowing” and “knowingly”—

(A) mean that a person, with respect to information—

(i) has actual knowledge of the information;

(ii) acts in deliberate ignorance of the truth or falsity of the information; or

(iii) acts in reckless disregard of the truth or falsity of the information; and

(B) require no proof of specific intent to defraud;

Thus, it is not necessary that the contractor intended to submit a false claim in order for the contractor to incur FCA liability. Further, a contractor’s belief that it is acting properly does not mean that it has not submitted a false claim. If the claim is shown not to be true, the question then becomes whether it was submitted knowingly as defined above.