Liability for False Certification of Final Indirect Costs

LIABILITY FOR FALSE CERTIFICATION

A knowing violation of the express provisions of the cost principles can also lead to liability under the civil False Claims Act (the “FCA”), 31 U.S.C. § 3729. The penalties statutes explicitly provide that “the submission to an agency of a proposal for settlement of costs for any period after such costs have been accrued that includes a cost that is expressly specified by statute or regulation as being unallowable, with the knowledge that such cost is unallowable, shall be subject to the provisions of the FCA. See 10. U.S.C. § 2324(i); 41 U.S.C. § 256(i). See also, e.g., U.S. ex rel Schumer v. Hughes Aircraft Co.,63 F3d 1512 (9th Cir. 1995), vacated on other grounds, Hughes Aircraft Co. v. U.S. ex rel. Schumer, 520 U.S. 939 (1996).

The upper limit of exposure for an FCA violation is $11,000 per false claim and treble damages. 31 U.S.C. § 3729(a). The FCA penalty arithmetic can quickly dwarf the FAR 42.709 assessments because of the unique interplay between the FCA definition of a “claim” and the nature of indirect costs, which are generally allocable to large numbers of contracts and virtually every request for payment under flexibly priced contracts.

No reported decision has involved an FCA action authorized under 10. U.S.C. § 2324(i) or 41 U.S.C. § 256(i). Most likely, such situations would be treated like other false certification cases. In fact, a knowing inclusion of unallowable costs in a proposal would be a violation of the Certification of Final Indirect Costs, FAR 52.242-4, which is required to be filed with the proposal. Where a contractor “makes a false certification but solicits 51 separate payments on the basis of the certifications, many, but not all, courts have concluded there were 51 false claims.” John T. Boese, Civil False Claims and Qui Tam Actions, §3.05[B], at 3-87 (3d ed. 2006).

Some “upside” for the contractor’s certifying official, since 1997 the signature on the Certificate of Final Indirect Costs has no longer carried the penalty of perjury. CompareFAR 52.242-4, Certification of Indirect Costs (JAN 1997), with FAR 52.242-4, Certification of Indirect Costs (OCT 1995). That “upside,” while of some value to the individual certifying official, is of little comfort to the company under the FCA.

Mandatory Disclosure

Also, remember the Mandatory Disclosure rules. If a principle knowling signs a false certification a company would need to investigate and submit a mandatory disclosure in the event there is credible evidence that the company materially overcharged the government.