On May 20, 2009, President Obama signed legislation containing a number of significant amendments to the federal civil False Claims Act (FCA) and its whistleblower or qui tam provisions, 31 U.S.C. §§ 3729, et seq. These amendments, which are part of the Fraud Enforcement and Recovery Act of 2009, increase the reach of the FCA in several important ways, including at least one that may materially change how contractors deal with overpayments they receive in connection with their federal contracts.
The new amendments make a number of changes to the substantive liability provisions of the FCA. These changes may be summarized briefly as follows:
- Creation of new FCA liability for knowingly concealing or knowingly and improperly avoiding an obligation to pay money to the government, including an obligation arising from “the retention of any overpayment.” This potentially important provision will be discussed in more detail below.
- Providing that FCA liability may attach where a false statement is “material to” a government payment of the claim and eliminating the statutory requirement that the statement was made “to get” the claim paid. This change is intended to overrule the Supreme Court’s decision in Allison Engine Co. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008), which held that in order to establish liability under former subsections (a)(2) and (a)(3) of the FCA, the government or relator had to show that the defendant submitted the false claim specifically intending that the U.S. government itself pay the claim. 128 S.Ct. at 2128. Now, the government or relator must show only that the false claim or statement had “a natural tendency to influence” or was “capable of influencing” the payment of the claim. This change applies retrospectively to conduct pre-dating the enactment of the amendments.
- Elimination of the “presentment clause” under former subsection (a)(1), which required proof that the false claim be presented to an officer or employee of the U.S. government. The government nexus requirement now exists in the expanded definition of claim, which includes not only those claims made to the U.S. government, but also those made to a recipient of federal funds if the money or property provided to the recipient will “be spent or used on the government’s behalf or to advance a government program or interest,” and if the government has provided or will reimburse the recipient for any portion of the money or property requested or demanded.
- Expansion of the anti-retaliation provision to include claims brought not only by employees, but by contractors or agents of the federal contractor, for any manner of discrimination “in the terms and conditions of employment” in response to that person’s efforts “to stop” violations of the FCA.
The amendments also make several procedural changes to the FCA, including:
- A provision allowing the government’s intervention in a qui tam action—including the government’s addition of new claims—to “relate back” for statute of limitations purposes to the filing date of the relator’s original complaint. This provision overrules a decision in United States v. Baylor University Medical Center, 469 F.3d 263 (2d Cir. 2006).
- Expansion of the Civil Investigative Demands (CID) provision, granting the Department of Justice broad discretion to share information obtained through the CID process with other federal, state and local government agencies and their contractors, and with any qui tam relator and his or her counsel and removing procedural hurdles to authorizing use of CIDs in investigating qui tam allegations.
- A provision allowing the government or qui tam relator to serve the complaint, other pleadings, or any other written disclosures, while they remain under seal, on state or local government authorities charged with investigating and prosecuting such actions where the state or local government is named as a co-plaintiff with the United States.
- A provision making these three procedural amendments applicable to cases pending on the date of enactment.
Of particular interest to government contractors is the provision making it a violation of the FCA to avoid or conceal an obligation to pay or transmit money to the federal government. In full text, the new provision states that any person who
knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,
is liable under the damages and penalty provisions of the FCA.
Although it may take years and many court decisions to clarify fully the meaning of this provision, some are interpreting it to impose heightened disclosure and repayment obligations on federal contractors and grantees who come across evidence of possible overcharging in connection with their federal awards. Although the provision is often referred to as the “overpayments” provision, the wording of the provision extends not just to overpayments, but to any “obligation to pay or transmit money or property” to the federal government. “Obligation” is defined as
an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.
Of course, contractors are already obligated to report and return certain overpayments under the payments clauses of their contracts. For example, FAR 52.232-25, Prompt Payment, provides:
If the Contractor becomes aware of a duplicate contract financing or invoice payment or that the Government has otherwise overpaid on a contract financing or invoice payment, the Contractor shall—
(1) Remit the overpayment amount to the payment office cited in the contract along with a description of the overpayment [and] (2) Provide a copy of the remittance and supporting documentation to the Contracting Officer.
In addition to providing for a new standard of liability under the FCA, the overpayments provision raises several important unanswered questions, including the following:
- What is an “overpayment”? It seems clear enough that an overpayment occurs when a federal agency makes a payment to a contractor or grantee in an amount that exceeds what the contractor or grantee requested. For example, an inadvertent government payment of $50,000 on an invoice of only $40,000 would almost certainly be considered an overpayment of $10,000. The term could be read more broadly, however, to cover any instance in which a contractor or grantee receives a payment in excess of what it was entitled to receive.
- Does the existence of a government overpayment, without more, give rise to a duty “to pay or transmit money or property” to the government?
- How much or how little knowledge of an obligation must a contractor have in order to be deemed to have “knowingly” concealed or improperly avoided the obligation? Must the contractor have investigated the facts and determined with some degree of certainty that an overpayment has been made, and its amount? Or is the provision triggered by general knowledge that an overpayment in some amount may have occurred, or has probably occurred?
- What conduct constitutes “concealment” of an obligation? Is a failure to disclose the obligation in itself a concealment? Does a failure to investigate constitute concealment? Or must there be some affirmative “covering up”? If an overpayment is corrected without a disclosure to the government, can the obligation still be deemed to have been concealed?
- Liability for avoiding or decreasing an obligation exists only where a person has acted “knowingly and improperly.” What does “improperly” mean in this context?
One aspect of the legislative history of the overpayments provision is positive from the perspective of contractors. A statement by Sen. Jon Kyl (R-AZ) made it clear that the word “improperly” was inserted in the new obligation provision to recognize that some overpayments, including those held in due course during the period before a government prescribed reconciliation, are properly held and should not be subject to liability.1
It remains to be seen whether and to what extent the overpayments provision will affect contractors’ response to their discovery of possible overcharges to their federal contracts. It seems certain, however, that the provision will cause careful contractors to consider whether a failure to investigate possible overcharges, or a failure to correct or disclose them, might be viewed as a concealment or avoidance of a federal obligation under the newly amended FCA. These new provisions come on the heels of recent revisions to the Federal Acquisition Regulation that make a failure to timely disclose credible evidence of significant overpayments a cause for suspension and debarment from government contracting.2 The FCA amendments significantly increase the risks associated with how contractors address issues concerning potential overpayments.