Leo Tolstoy famously began his 1877 novel Anna Karenina with the observation, “All happy families are alike; each unhappy family is unhappy in its own way.” Much the same could be said of government contractors that find themselves in hot water relating to false claims. Two recent settlements by government contractors remind us that there is more than one way to end up facing U.S. Department of Justice (DOJ) allegations that you have defrauded the Government.
One such path to false claims involves charging the Government the contract price for goods or services that do not meet the contract requirements. On September 11, 2020, United States Attorney Josh J. Minkler announced a civil settlement with Dave O’Mara Contractor, Inc. (DOCI), an asphalt contractor based in Southern Indiana, as well as certain DOCI affiliates and shareholders. The settlement agreement resolves allegations that DOCI knowingly made misrepresentations to Indiana Department of Transportation (INDOT) in connection with paving projects funded in part by the Federal Highway Administration. Specifically, the Government alleges that DOCI represented that its hot asphalt mixture met INDOT’s minimum requirements for the amount of binder or “glue” that would hold the mix together when, in fact, DOCI’s asphalt frequently failed to meet those requirements and were, therefore, more likely to prematurely deteriorate.
As Andrea M. Kropf, Regional Special Agent-In-Charge, United States Department of Transportation Office of Inspector General explained, “It is important to ensure that taxpayers get what they pay for so that the quality of products used in highway transportation projects is not compromised.” The settlement contains no determination of liability, but it provides that DOCI will pay and/or guaranty payments totaling over $4.25 million over the next four years.
Another road to false claims entails the use of federal grant money for work not related to the grant. Several days after the DOCI settlement was announced, the DOJ announced that The Scripps Research Institute (TSRI) has agreed to pay the U.S. $10 million to settle a whistleblower suit alleging it used grants from the National Institutes of Health (NIH) to pay for unrelated work by its researchers. More particularly, the settlement resolves allegations that between 2008 and 2016, TSRI did not have a system in place for its faculty to properly account for time spent on activities that cannot be charged directly to NIH-funded projects or are unrelated to the research activities of the NIH-funded project. Consequently, the U.S. contended that TSRI improperly charged time spent by faculty on developing, preparing, and writing new grant applications directly to existing NIH-funded projects, rather than allocating such charges as indirect costs. The U.S. also alleged that TSRI improperly charged NIH-funded projects for time spent by its faculty on other activities unrelated to the funded projects, such as teaching, TSRI committee work, and other administrative tasks. TSRI, which averages about $250 million in research grants each year, more than 85% of which comes from the federal government, did not admit any wrongdoing in the settlement.
The DOJ takes its commitment to protect the finite financial resources of NIH (and other agencies) very seriously, particularly given the importance of scientific advances. In this regard, U.S. Attorney Robert K. Hur stated, “Federal grant recipients must use the grant funds they receive on tasks that specifically relate to the funded project. Those that improperly charge the government for costs unrelated to the project must be held accountable.”
The allegations were originally brought in a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act by Thomas Burris, Ph.D, a former TSRI employee who will receive a $1.75 million cut of the settlement.
Tolstoy was right, of course: unhappy families are unhappy for a multitude of reasons, just as contactors facing false claims allegations end up in that position due to a wide variety of circumstances. But he was also correct that happiness comes from a singular set of conditions. In the case of government contractors, the best chance of achieving the requisite conditions—and concomitant “happiness”—is to develop and effectively implement a comprehensive business ethics and conduct compliance program. Without such a program, contractors are much more likely to stumble onto one of the many roads that can lead to decidedly unhappy outcomes like false claims. If you do receive a subpoena (whether it’s from a Grand Jury or an Agency Inspector General), it is important to determine what needs to be done and to act promptly and carefully to ensure that you properly collect and preserve data and documentation.