The GAO recently sustained a protest because the agency failed to adequately consider a False Claims Act (FCA) case that was pending against the awardee’s parent corporation. The GAO’s decision in FCi Federal, Inc. represents a rare intersection of the FCA and GAO’s bid protest jurisdiction. The decision also provides an example of a successful challenge to an affirmative responsibility determination–an issue GAO will generally not review.

In October 2013, six months after offerors submitted initial proposals – but before the award decision – the DOJ announced that it was intervening in a qui tam case against the awardee’s parent company. In its complaint, DOJ alleged that the management of the parent company “devised and executed a scheme to deliberately circumvent contractually required quality reviews of completed background investigations in order to increase the company’s revenues and profits” under an Office of Personnel Management (OPM) contract. Possible damages were estimated at more than $1 billion.

In an unfortunate “D’Oh” moment, it turned out the awardee’s proposal had touted the involvement of its parent company: “We have one integrated command and control structure. We share a set of common policies and procedures across the corporation . . . . Our employees also move across the organization among operating Divisions and the LLC.” The awardee also listed the OPM contract that gave rise to the FCA allegations as a past performance reference.

Although the contracting officer learned about the FCA action through media reports, she did not read the complaint or request information from the eventual awardee or its parent company. Nor did the contracting officer contact anyone at the DOJ or OPM about the case.

The contracting officer relied on agency counsel as her source of information and advice, and she (the CO) believed that “[u]nder the standard of ‘innocent until proven guilty in a court of law’ there is no basis for [the agency] to not award a contract to [the awardee] through a de facto debarment.” In other words, the contracting officer approached the responsibility determination with the presumption of responsibility until proven non-responsible. But the CO did not consider FAR 9.103(b), which states: “in the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility” and, instead, awarded the contract to the low-price offeror (with equal technical ratings) without further consideration of the responsibility.

The disappointed offeror protested, arguing that the agency failed to properly analyze the awardee’s responsibility, i.e., did not consider the FCA complaint against the awardee’s parent. GAO sustained the protest because of the contracting officer’s (i) failure to obtain and consider the DOJ complaint, (ii) failure to consider the close relationship between the parent company and the awardee (as demonstrated by the proposal), and (iii) misunderstanding of the legal standards governing responsibility. GAO noted that, although it generally “does not review affirmative determinations of responsibility by a contracting officer,” it will do so when “the protester presents specific evidence that the contracting officer may have ignored information that, by its nature, would be expected to have a strong bearing on whether the awardee should be found responsible.”

The number of FCA actions filed goes up just about every year, but this decision should not mean that any FCA case against any parent or affiliated company will result in a nonresponsibility determination. The GAO decision focuses primarily on the contracting officer’s failure to understand the proper legal standard or to conduct a proper investigation of the facts. If investigated, qui tam cases in which DOJ has not intervened arguably should not generate the same result. Similarly, cases in which the offeror’s business is not as closely intertwined with the affiliated company facing an FCA claim arguably should not result in a nonresponsibility determination. That said, FCi Federal shows that an FCA action against an parent or affiliated company is something contractors should expect agencies to analyze carefully—and may result in a nonresponsibility determination and a rejected offer.