False Bidding Estimates = Fraud

Extreme competition among government contractors for ever-increasing federal dollars has sparked a wave of “how low can you go” bidding wars among contractors.  Although a bidder may want to submit low bid prices to win a cost-reimbursement contract, the bids must be the actual prices and must have the facts to support  them.  

A recent federal court case involving a large government contractor confirms that purposefully bidding prices lower than the actual charge can constitute fraudulent bidding under the False Claims Act.  In the case, the contractor’s initial bid prices came in too high so they lowered the bids without considering the actual cost.  The contractor won the contract but a whistleblower successfully claimed that the contractor’s bidding process violated the FCA.  Although bids are only estimates and opinions, they must have some facts justifying them.  This decision shows that courts will continue to broadly interpret the False Claims Act.

The decision highlights a solid government contracts principle:  always make sure that your bid prices are backed up with solid pricing and market research data to avoid costly bid protests, FCA treble damages, and findings of non-responsibility based on ethical and legal violations.

Katie Lipp is an Associate Attorney with Berenzweig Leonard, LLP, a business law firm in the DC region.  She can be reached at klipp@BerenzweigLaw.com.  Terry O’Connor is the Director of Government Contracts for Berenzweig Leonard, LLP and can be reached at toconnor@BerenzweigLaw.com.

The Federal Government Encourages Contractors to Adopt Policies Against Texting While Driving

The dangers associated with texting while driving are well known. Today, thirty-nine states, D.C., Guam and the Virgin Islands ban text messaging for all drivers.   On August 4, 2011, the FAR was amended to include Clause 52.223-18, Encouraging Contractor Policies To Ban Text Messaging While Driving. This rule was published in response to Executive Order 13513, entitled “Federal Leadership on Reducing Text Messaging while Driving,” which requires each Federal agency to encourage contractors and subcontractors to adopt and enforce policies that ban texting while driving.  Agencies are now required to insert FAR 52.223–18 in all solicitations and contracts.

Paragraph (c) of this Clause encourages contractors to: 

(1) Adopt and enforce policies that ban text messaging while driving--
(i) Company-owned or -rented vehicles or Government-owned vehicles; or
(ii) Privately-owned vehicles when on official Government business or when performing any work for or on behalf of the Government.
(2) Conduct initiatives in a manner commensurate with the size of the business, such as--
(i) Establishment of new rules and programs or re-evaluation of existing programs to prohibit text messaging while driving; and
(ii) Education, awareness, and other outreach to employees about the safety risks associated with texting while driving.

Paragraph (d) of the Clause also requires contractors to insert the substance of this clause in all subcontracts that exceed the micro-purchase threshold.

Although the implementation of the policies set forth in FAR 52.223-18(c) is not mandatory, government contractors and subcontractors should seriously consider the benefits associated with adopting policies against texting while driving. Not only could such policies head off possible accidents caused by distracted driving, but they could help insulate the company from liability should an employee cause an accident by texting while driving while arguably acting “in the scope” of his or her employment.

Stephanie Wilson is a Senior Associate at the business law firm Berenzweig Leonard, LLP, located in the Washington, DC region. She can be reached at swilson@berenzweiglaw.com.

Pay Attention to Payment Clauses in Contracts

Under a Labor Hour contract, a government contractor can legally be paid for 50 hours of work performed by a salaried employee in one week, even though that employee does not receive more than what his salary pays based on 40 hours per week. Although the government claimed that this would let a contractor “pocket undue windfall profits at taxpayer expense," the Armed Services Board of Contract Appeals (ASBCA) concluded that the contract required payment.

The contract’s payment clause (FAR 52.232-7 Payment Under Time-and-Materials Labor-hour Contracts [FEB 2007]) required the government to pay the contract’s “hourly rates …for all labor performed on the contract that meets the labor qualifications specified in the contract.” According to the board, as long as the salaried employees received their salary, the government was obligated to pay the contractor for the 50 hours worked by these employees, as long as the contractor paid those employees their salary based on a 40-hour work week.

As this decision makes clear, it is critical to carefully read the specific payment clause in the contract as there can be significant differences among the more than half-dozen payment clauses available to the government.

Author Terrence O’Connor is the Director of Government Contracts for the Washington, DC business law firm, Berenzweig Leonard, LLP.  Email Terrence O'Connor