Move over Big Pharma: Health care is not the only industry susceptible to False Claims Act scrutiny

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In Brief

  •  In contrast to the recent, public and record-breaking False Claims Act settlements with Big Pharma, the government’s intervention in a relator’s suit against a computer software company, alleging that the contractor overcharged agencies by at least $100 million since 2006, should be a warning to other industries – the classic FCA suit is still as effective as ever in recovering against fraudulent billing based on a contract for services.

The Contract

The company (formerly known as Computer Associates International, Inc. or CA, Inc.) (“CA”) had contracted with the U.S. General Services Administration (“GSA”) to provide software licenses, software maintenance, and consulting services to executive agencies including the Department of Defense; Department of Energy; Department of Health and Human Services; Department of Treasury; Department of Labor; and Department of Veterans Affairs. The GSA negotiated the contract terms, which included maximum prices and price monitoring mechanisms to ensure that the government receives prices and discounts at the same rate as commercial customers. The GSA signed an agreement with CA (the “2002 Multiple Award Contract”) in which CA promised to provide the government with prices and discounts that were the same as, or lower than, those given to commercial customers. Pursuant to the 2002 Multiple Award Contract, discounts and pricing were to be disclosed so that GSA could negotiate the best prices for its customer agencies. In a “Price Reductions Clause,” GSA promised to provide quarterly updates and adjustments if necessary.  

The Allegations

Dani Shemesh, the “relator” who filed the lawsuit and former head of sales at CA Software Israel, a wholly owned subdivision of CA, alleged that while CA gave the government discounts ranging from 35 percent to 55 percent off CA’s list prices for software licenses and 10 percent to 15 percent off of prices for maintenance, the company offered commercial customers discounts that exceeded 90 percent off of list prices.

The U.S. government recently joined and assumed primary responsibility for the lawsuit, which has the practical effect of bolstering Shemesh’s case. The government’s complaint alleges that CA violated the FCA and harmed the government with its “defective pricing” through making false statements during negotiations for contract extensions in 2007 and 2009; making false statements during the contract’s performance; failing to comply with the contract’s Price Reductions Clause; and overcharging the government generally by at least $100 million since 2006. 

According to the complaint, the government, in deciding to extend the contract, relied on false statements that CA knowingly made. The complaint alleges that “[b]ecause CA fraudulently induced the United States to enter into the [c]ontract extensions, each claim for payment made by CA under those extensions was a false claim,” and “[b]ecause CA overcharged the United States, its claims were also false each time the ordering agency received a discount that was less than it would have received had CA made accurate, complete, and current disclosures regarding its commercial pricing.” (emphasis added). The complaint seeks three times the amount of damages from CA, along with penalties of up to $11,000 for each violation.

Takeaways

Since its first iteration, signed into law by President Abraham Lincoln, the FCA has been an effective tool in combating against, and recovering for, fraud on the government. By intervening in this case, the Department of Justice is going back to these roots. The allegations raised by the government demonstrate the classic contract for services and fraudulent billing formula. The most famous and largest cases during the last decade have all been in health care. This case reminds us that all government vendors have exposure. No company or government vendor, regardless of market sector, should consider itself immune to the civil and criminal penalties of the FCA. Companies should understand that defrauding the government can occur based on active missteps as well as failures to provide pricing or discounts that match the discounts given to non-governmental customers. Importantly, no specific intent is required for a company to be found liable for fraud. 

 

Topics:  Contractors, Corporate Counsel, False Claims Act, Federal Contractors, GSA, License Agreements, Popular, Software

Published In: Civil Remedies Updates, Government Contracting Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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