DOJ Came Out Swinging with False Claims Act Recoveries in FY 2021
On Tuesday, DOJ released its eagerly awaited False Claims Act (FCA) recoveries for the fiscal year ending September 30, 2021, announcing that DOJ had obtained $5.6 billion in settlements and judgments from civil cases involving fraud and false claims against the government. This was the second largest annual total in FCA history (only surpassed by the $6.2 billion in recoveries in FY 2014), which was telling since the number of new qui tam matters filed actually decreased from 675 in FY 2020 to 598 in FY 2021 and the number of non-qui tam matters decreased from 259 in FY 2020 to 203 in FY 2021. FCA recoveries had hit a decade low in FY 2020, so Tuesday’s announcement foreshadows a banner year for FCA enforcement in FY 2022, particularly given DOJ’s recent statements on its enforcement priorities.
As expected, the bulk, or $5 billion, of last year’s recoveries related to actions involving the health care and life sciences industries (with $2.8 billion due to the Purdue Pharma LP’s opioid-related settlement). What was surprising about the report was the amount of recoveries for government-initiated, non-qui tam matters, which amounted to $3.98 billion, or 730 percent higher than in FY 2020. $3.59 billion of that amount pertained to health care and life sciences matters, and $1.6 billion arose from the qui tam or whistleblower provisions of the FCA. A critically important statistic for government contractors, though, was the 254 percent increase in the amount of recoveries from whistleblower settlements and judgments for Department of Defense (DoD)-related matters.
So what does this mean? It means that overall, while fewer FCA cases were filed, the government focused on initiating its own enforcement actions and pursued them vigorously. It also means that the government appears to be intervening in more whistleblower actions in procurement fraud matters. Indeed, the DOJ listed the wide variety of procurement fraud matters it settled last year, including:
Government contractors falsifying pricing data.
- Navistar Defense LLC paid $50 million to resolve allegations that it fraudulently induced the U.S. Marine Corps to enter into a contract modification at inflated prices for a suspension system for armored vehicles.
- Insitu Inc. paid $25 million to settle allegations that it knowingly submitted materially false cost and pricing data for contracts with the U.S. Special Operations Command and the Department of the Navy to supply and operate Unmanned Aerial Vehicles.
- Furniture maker Workrite Ergonomics LLC paid $7.1 million to resolve allegations that the company did not provide the General Services Administration (GSA) with accurate information about its commercial sales practices during contract negotiations for office furniture, and subsequently violated the terms of its contract by failing to extend lower commercial pricing to government customers.
Government contractors provided goods or services that did not comply with contract requirements.
- United Airlines Inc. paid $32.1 million to resolve allegations relating to its execution of contracts to deliver mail internationally on behalf of the U.S. Postal Service.
- Cognosante LLC paid $18.9 million to resolve allegations that it used unqualified labor and overcharged the government for health care and IT services provided to federal agencies under two GSA contracts.
- AAR Corp. and its subsidiary, AAR Airlift Group Inc., paid $11 million to resolve allegations that AAR Airlift knowingly failed to maintain nine helicopters in accordance with DoD contract requirements and that the helicopters were not airworthy and should not have been certified as fully mission capable.
Government contractors alleged to have paid or received kickbacks related to government contracts.
- Level 3 Communications LLC paid $12.7 million to resolve allegations that the owner of two subcontractors paid kickbacks to Level 3 senior managers in return for favorable treatment for those subcontractors on government contracts. The government also alleged that Level 3 managers misstated compliance with woman-owned small business subcontracting requirements and knowingly obtained protected competitor bid information on the government contract to gain an advantage in bidding on task orders.
- Schneider Electric Buildings Americas Inc. paid more than $9 million to resolve allegations that one of its senior project managers solicited kickbacks from subcontractors and that the company fraudulently charged the government for design costs by disguising those costs and spreading them across unrelated pricing components.
The key takeaway from DOJ’s announcement is that now, more than ever, government contractors must focus on having and maintaining a robust compliance program. Contractors also must establish a culture of compliance, where management actually buys in to implementing and acting upon the program, not just having a compliance program on paper. With the increased DOJ focus on pursuing whistleblower claims in government contracting matters, companies must fortify their internal whistleblower programs, including providing compliance training for personnel, implementing measures for appropriate reporting of misconduct, and diligently investigating whistleblower reports when received. When a company maintains an effective compliance program, it encourages good behavior and makes it that much more difficult for bad actors to engage in unlawful conduct, and, if the conduct does occur, it increases the likelihood that the company will learn about and be able to address it promptly and effectively.
Contact Habib Ilahi for more information.