Following the U.S. Supreme Court’s landmark Escobar decision two years ago, many False Claims Act (FCA) issues remain unsettled. As a result, 2018 will bring prominent challenges to a national security-related contracting ban, as well as potential litigation over enormous recently awarded and imminent federal deals. Government contractors would be wise to watch out for these cases in the coming year. Last year saw a number of important contracts rulings, and 2018 will likely see more of the same. The following describes some of the most prominent cases and potential legal battles to stay alert for in 2018:
In the Escobar decision, the U.S. Supreme Court approved implied false certification as a basis for False Claims Act liability. This ruling established that claims can be brought against companies for mistakenly implying that they are meeting the “contractual, regulatory and statutory requirements by submitting claims for payment.” However, lower courts are left with two new unsettled issues: whether it is mandatory to apply the two-part test for falsity of claims outlined in the opinion, and how to determine if an alleged false claim is “material” to government payment. Despite dozens of post-Escobar decisions in the district and circuit courts, there is still no consensus on these issues.
More post-Escobar will be decided in 2018, hopefully bringing more clarity to FCA relators and Defendants. Perhaps the most prominent will be U.S. ex. rel. Rose et al. v. Stephens Institute, a recently argued case in the Ninth Circuit. This case involves allegations that Stephens Institute, an Academy of Art University, paid illegal bonuses to student recruiters. The circuit court will address both the two-part test and the materiality standard.
Medical Necessity and Potential First Cybersecurity FCA Case
The health care industry remained a leading source of government FCA recoveries in 2017. Medical necessity in particular remains one of the largest uncertain FCA issues. This past March, the Eleventh Circuit heard oral arguments for U.S. v. GGNSC Administrative Services et al., and is poised to make a ruling on the issue. That case alleges hospice company AseraCare Inc. illegally billed the government for services to patients who were not terminally ill. The district court found that the issue was based on a difference of opinion about hospice care eligibility. Additionally, the AseraCare case could see a ruling on the unresolved issue of statistical sampling, which is allowing damages or liability to be estimated based on a sample of claims.
On another note, 2018 may see the first ever cybersecurity-based FCA case. The federal government has increased its emphasis on cybersecurity over the past few years, and the Department of Defense amended the Defense Federal Acquisition Regulation Supplement (DFARS) in 2017 to require contractors to “protect controlled information and promptly report breaches.” According to many lawyers in this area of practice, this is a particularly likely source of potential liability because many federal contractors struggled to implement their compliance plans by the Department of Defense’s (DOD’s) Dec. 31, 2017, deadline. The high number of people within organizations responsible for DFARS compliance will most likely be more whistleblowers making claims under the False Claims Act.
Competing Preference Programs
In its 2016 Kingdomware decision, the U.S. Supreme Court ruled that under a 2006 statute, the U.S. Department of Veterans Affairs must give preference on contracts to veteran-owned small businesses (VOSBs) “where at least two small businesses are expected to bid on a contract” that can do the work at a reasonable price. While the ruling was a victory for VOSBs, it conflicts with the federal agency’s requirement to give preference for certain products and services to businesses that are part of the AbilityOne program, nonprofits that employ blind or significantly disabled individuals.
These businesses now find their fate hanging in the balance as the Court of Federal Claims recently found in PDS Consultants Inc. v. U.S. that “VOSBs must be given preference over AbilityOne contractors for VA contracts,” resulting in an appeal to the Federal Circuit. According to the AbilityOne Commission, more that $3.3 billion in purchases were made through the AbilityOne program, and the circuit court’s ruling could have an existential impact on the program.
Federal Contracting Ban Challenges
In September of last year, the U.S. Department of Homeland Security (DHS) directed federal civilian agencies to stop using antivirus software from AO Kaspersky Lab because of security concerns that the company may have ties to the Russian Government. Kaspersky sued DHS on Dec. 18, stating it has claimed for months that it does not collaborate with the Russian government and claiming it was not given a fair chance to respond before DHS issued the ban.
Kaspersky has minimal direct government sales, but “its software is embedded in several other manufacturers’ hardware solutions that are used by the government.” In broad terms, this case will likely give both the government and federal contractors with foreign operations a better idea of “where they stand in regard to similar potential bans from contracting outside of the formal debarment system.” The case is in the U.S. District Court for the District of Columbia, Kaspersky Lab Inc. et al. v. Department of Homeland Security et al., case number 1:17-cv-02697.
Bid Protests and Post-Disaster Contracting Enforcement
It’s fairly common when agencies announce a large contract award for unsuccessful bidders to make legal challenges. This was best “demonstrated by a series of bid protest challenges to the U.S. General Services Administration’s recent $50 billion multiaward Alliant 2 information technology contract.” Further, the DOD’s fifth repetition of its multiaward Logistics Civil Augmentation Program contract, or LOGCAP V, is expected to be the largest single contract award in 2018. While the fifth iteration will not be quite as lucrative as LOGCAP IV, awarded in 2007, “it will still be worth up to $82 billion over a decade,” making it ripe for legal challenges.
In addition, litigation under the FCA or as a criminal action is highly likely with respect to the emergency contracting following the string of hurricanes and wildfires in 2017, because contractors will struggle to completely comply with the law in these exigent circumstances. With “Congress poised to provide more than $130 billion in overall federal disaster relief funds,” many lawyers say that long-term disaster recovery and reconstruction contracts will likely see many of their own legal challenges in 2018.
Further, federal agencies have recently taken an aggressive stance regarding access to contractors’ technical data. This could result in new bid protest litigation in 2018.
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