Justice Oliver Wendell Holmes once noted that those “who deal with the government must turn square corners.” What he didn’t mention is how much it may cost a contractor if those corners get cut.
Federal and California statutes both include laws known as “False Claims” acts. Those laws provide powerful financial incentives for competitors and disgruntled employees – and their lawyers – to pursue litigation against any company that submits an improper claim for payment from the government.
The False Claims acts permit a private party with knowledge of an improper claim for payment – known as a “relator” – to bring a lawsuit against the company that has made the improper claim. If the action is successful, the relator receives from as little as 15 percent to as much as 50 percent of the total amount recovered.
And that amount can be substantial. While a company that breaches a private-sector contract is liable for the damages that result, a company that submits an improper claim for payment to the government is liable for three times amount of damages, plus penalties of up to $10,000 per occurrence, plus attorney fees.
In 1997, a disgruntled employee of a valve manufacturer filed a lawsuit in Los Angeles County Superior Court against her employer. She claimed that she had informed her supervisors that certain of the products in its catalog failed to meet the published specifications, but was told to mind her own business. Last November, the company paid $90 million to settle claims by public entities that had incorporated those valves into their waterworks. The relator received approximately $20 million; the plaintiffs’ lawyers got $30 million.
Another Southern California construction company obtained approximately $4 million in federal contracts that had been set aside for minority-owned businesses. A false claims action alleged that the company was actually controlled by the Hispanic owner’s non-Hispanic father-in-law. The company paid $500,000 to settle those claims.
And in Louisiana, a contractor on a federal highway construction project used steel pipe that did not meet contract specifications. Cost to the company? $30 million.
There are more examples, but they all illustrate the same point. If you are contracting with the government, be extremely careful when submitting invoices. The penalties for a mistake in your favor are extreme.
FALSE CLAIMS
Justice Oliver Wendell Holmes once noted that those “who deal with the government must turn square corners.” What he didn’t mention is how much it may cost a contractor if those corners get cut.
Federal and California statutes both include laws known as “False Claims” acts. Those laws provide powerful financial incentives for competitors and disgruntled employees – and their lawyers – to pursue litigation against any company that submits an improper claim for payment from the government.
The False Claims acts permit a private party with knowledge of an improper claim for payment – known as a “relator” – to bring a lawsuit against the company that has made the improper claim. If the action is successful, the relator receives from as little as 15 percent to as much as 50 percent of the total amount recovered.
And that amount can be substantial. While a company that breaches a private-sector contract is liable for the damages that result, a company that submits an improper claim for payment to the government is liable for three times amount of damages, plus penalties of up to $10,000 per occurrence, plus attorney fees.
In 1997, a disgruntled employee of a valve manufacturer filed a lawsuit in Los Angeles County Superior Court against her employer. She claimed that she had informed her supervisors that certain of the products in its catalog failed to meet the published specifications, but was told to mind her own business. Last November, the company paid $90 million to settle claims by public entities that had incorporated those valves into their waterworks. The relator received approximately $20 million; the plaintiffs’ lawyers got $30 million.
Another Southern California construction company obtained approximately $4 million in federal contracts that had been set aside for minority-owned businesses. A false claims action alleged that the company was actually controlled by the Hispanic owner’s non-Hispanic father-in-law. The company paid $500,000 to settle those claims.
And in Louisiana, a contractor on a federal highway construction project used steel pipe that did not meet contract specifications. Cost to the company? $30 million.
There are more examples, but they all illustrate the same point. If you are contracting with the government, be extremely careful when submitting invoices. The consequences of a mistake in your favor can be extremely unfavorable.