In United States ex rel. Beuchamp v. Academi Training, the Fourth Circuit recently reversed the dismissal of a False Claims Act (FCA), explaining that the trial court had misapplied the public-disclosure bar when it dismissed the relators’ claims. The appellate court’s opinion explains recent (2010) statutory amendments, the manner in which an important pre-amendment Supreme Court precedent applies, and the proper application of the public-disclosure bar to the facts at issue. In short, when analyzing the timing of the public disclosure that purportedly bars FCA allegations, courts must focus on the pleading in which the relator(s) first alleged the relevant fraud—not on the most recent amendment to the complaint.


Continue Reading Recent Fourth Circuit Decision Makes Clear that, with Respect to the FCA Public-Disclosure Bar, the Disclosure’s Timing Must Be Considered Against the First Pleading in which the Relevant Allegations are Initially Made

Back in August 2015, DoD issued an interim rule, which was effective immediately (and was previously discussed on this blog), imposing substantial new requirements on government contractors with respect to reporting information system network penetrations—and providing new cloud computing requirements. Six weeks later, DoD issued a class deviation giving contractors more time to comply with one of the technical requirements being applied by the new DFARS clauses included with the new rule. Last week, DoD again revised the rule to give contractors more time to comply with many of the new technical standards. Specifically, the revised DFARS provision makes clear that contractors have until December 31, 2017 to comply with the technical standards set forth in National Institute of Standards and Technology (NIST) Special Publication 800-171.

NIST 800-171 describes a series of procedures for “Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations.” These NIST requirements cover a wide array of security issues applicable to contractors’ information systems and are intended to ensure the security of government information that is provided to contractors so that the companies can provide goods and services to DoD.

Initially, DoD made the NIST 800-171 requirements immediately applicable to the large number of businesses that either have a “covered contractor information system” or have “covered defense information transiting their information systems” as part of their contract performance. DoD’s class deviation in October relaxed the standard slightly by amending the DFARS clauses to allow contractors up to nine months (from the date of a new contract award) to comply with section 3.5.3 of NIST 800-171. That section mandates “multifactor authentication for local and network access to privileged accounts and for network access to non-privileged accounts.” (Multifactor authentication requires two or more types of information, e.g., a password and a cryptographic device such as a token, to gain access to the government information.)

Many contractors were unhappy with the unrealistic implementation schedule imposed by the initial (and revised) DFARS provision, and they made their concerns clear to DoD in comments and during a December 14 meeting conducted by the Department to obtain additional feedback. Contractors expressed the need for additional time to analyze the scope of changes that were necessary for their systems—and to implement those changes.

To its credit, DoD modified the DFARS clauses to “provide offerors [contractors] additional time to implement the security requirements specified by NIST 800-171.” Each contractors will now be required to agree, by submitting an offer for a DoD procurement in which DoD information will be provided to contractors, that all of the contractor’s systems will be compliant with NIST 800-171 “not later than December 31, 2017.” Notably, the same requirements must be flowed down in all “subcontracts, or similar contractual instruments, for services that include support for” the goods or services being provided under a contract to which the DFARS clauses apply.

Although the additional time to achieve compliance with NIST 800-171’s requirements is helpful, the new DFARS clauses also impose an additional requirement that must be understood by contractors. “The second interim rule requires contractors, within 30 days of contract award, to notify the DoD Chief Information Officer of any NIST SP 800-171 security requirements that are not implemented at the time of contract award.” Accordingly, contractors will need to track where they are on the path to compliance with 800-171’s requirements so that accurate reports identifying gaps can be provided to the DoD each time contract performance begins under a new award.

The September 9, 2015 memorandum issued by Deputy Attorney General Yates makes clear that the Government intends to focus its investigative spotlight on possible False Claims Act violations by individuals, in addition to companies. “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” As the leverage for this new focus, corporations are advised that to be eligible for “any” cooperation credit, they must provide “all relevant facts” about individuals involved in the misconduct. As Ms. Yates said in her public remarks the day after the memo was released: “It’s all or nothing.”

The Yates Memo raises important questions concerning how the new approach will affect Government contractors’ actions under the Mandatory Disclosure Rule. Does DOJ’s focus on individuals mean that the practices and procedures companies have developed for compliance with the Mandatory Disclosure Rule must change? To what extent should individuals be the focus of internal investigations and disclosures in order for a contractor’s disclosure to be acceptable? Continue Reading The Yates Memo – Will It Change the Application of the Mandatory Disclosure Rule?

A few days ago, on August 26, DoD issued new interim rules amending the Defense Federal Acquisition Regulations (DFARS) with respect to “network penetration reporting and contracting for cloud services.” The new rules, which are now effective, revise several broadly applicable definitions applicable to numerous parts of the DFARS, expand the incident reporting requirements applicable to contractors, and impose security requirements applicable to cloud computing. DoD contractors need to understand these important new rules, which are summarized here, so that they can perform necessary compliance planning and make any necessary disclosures. Continue Reading New Interim Cyber Rules Expand Obligations of DoD Contractors

Government contractors face ever-increasing pressure to develop robust compliance programs that, among other things, detect potential violations of laws and regulations—which they are then obliged to report to the agency inspector general and the contracting officer. Like many large contractors, Kellogg Brown & Root’s (KBR) law department oversees (and conducts) investigations into potentially reportable violations under a code of business conduct. Although its attorneys’ investigations are protected by the attorney client privilege and the work product doctrine, KBR has been locked in a False Claims Act fight with a former employee/relator (Barko) who keeps trying to obtain KBR’s privileged internal investigation documents.

The D.C. district court has sided twice with the relator and ordered that KBR’s investigative materials be produced. Earlier this week, the D.C. Circuit granted KBR’s second mandamus petition and again rejected the relator’s arguments that it should be given the company’s investigative materials (and vacated the district court’s discovery orders). The opinion provides a further excellent discussion of the law related to the attorney client privilege and work product doctrine. Importantly, the D.C. Circuit’s opinion provides a powerful assurance to contractors that, when they conduct internal investigations under the direction of counsel and when proper steps are taken to protect the resulting investigatory materials, the attorney client privilege and work product doctrine will protect the contractors’ investigations from disclosure to relators in FCA cases (and to the Government).

Relator Barko alleges that “KBR and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.” During discovery, Barko learned that KBR had previously investigated issues related to the alleged fraud and sought documents related to KBR’s internal investigation. KBR refused. As we previously explained on this blog, during the earlier round of trial and appellate litigation, the district court reviewed the documents in camera and then ruled they should be produced because they purportedly were not generated in response to a request for legal advice, e.g., the investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” The D.C. Circuit rejected that analysis, which could not be reconciled with the Supreme Court’s 1981 decision in Upjohn Co. v. United States.

On remand, the trial court was given license by the D.C. Circuit to consider why the privilege might not attach to specific documents related to KBR’s internal investigation. The district court found that KBR had effected a subject matter waiver when their litigation counsel testified in response to a 30(b)(6) deposition notice about the subject of the investigation—testimony that was given subject to claims of attorney client privilege and objecting (and refusing to answer) questions that would have invaded the privilege.

The trial court held that KBR waived privilege with respect to its internal investigation materials because (i) under FRE 612 (“writing used to refresh a witness”), KBR had improperly allowed its 30(b)(6) witness to review the investigation materials before being deposed about them, and (ii) KBR had purportedly put the investigation materials “at issue” by relying on them in a summary judgment brief. The appeals court rejected both rulings.

First, Barko argued that he had essentially created a trap into which KBR had fallen. Barko asserted that he could “overcome the privilege by putting” the investigation at issue by noticing it as a 30(b)(6) deposition topic then demanding the investigative materials under Rule 612 when the witness concedes that he had reviewed the materials to prepare for the deposition topic that Barko had noticed. The circuit court held that “[a]llowing privilege and protection to be so easily defeated would defy ‘reason and experience’ and ‘potentially upend certain settled understandings and practices’ about the protections for such investigation.”

During oral argument, Barko had argued that KBR” could have avoided the trap by having the 30(b)(6) witness review a summary of the investigation documents prepared by someone else, rather than the documents themselves. The appeals court made clear that this position is “absurd,” as it would incentivize testimony by persons with second- or third-hand knowledge of an investigation rather than first-hand knowledge, and such “less knowledgeable corporate representatives for deposition[s]” would “defeat[] the purpose of civil discovery.” “This makes no sense.”

Second, the district court had found that KBR put its investigation “at issue,” i.e., made the privileged matters the subject of a controversy, by purportedly relying on it as the basis of non-liability argument in a summary judgment brief. Generally, a party asserting privilege cannot “disclose[] as much as he pleases [and] withhold the remainder” of the privileged information. The relator and the district court thought KBR’s summary judgment brief had done that by discussing (in a footnote reference) the law department’s investigation and the fact that, afterward, KBR did not report wrongdoing—from which “a factfinder could infer that the investigation found no wrongdoing.” The D.C. Circuit explained the flaw in Barko’s (and the trial court’s) inference-laden contention:

Where KBR neither directly stated that the . . . investigation had revealed no wrongdoing nor sought any specific relief because of the results of the investigation, KBR has not “based a claim” or defense upon the attorney’s advice.

The trial court also explained that, in the “context of the whole passage” in which it appears, the footnote at issue did not use the investigation to demonstrate KBR’s purported innocence.

Finally, the trial court had found that some of the investigation material constituted work product and was subject to production under the “substantial need” exception to that doctrine. Although the trial court described the law concerning the work product doctrine correctly, “the fault lies in [its] application” of the legal rules—which improperly would have “require[d] KBR to produce materials that are attorney-client privileged.” The D.C. Circuit rejected the trial court’s conclusion and vacated its decision.
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To effectively implement corporate compliance programs and to address the Government’s mandatory disclosure requirements, Government contractors—operating in a heavily regulated environment—must be able to conduct internal investigations. When contractors choose to have counsel conduct those investigations, they must be able to rely on the protection of confidential materials generated as a result of those investigations under the attorney client privilege and work product doctrine. The D.C. Circuit’s most recent KBR decision recognizes this important need and supports the crucial application of attorney client privilege.

Yet another unwary government contractor has been turned away by GAO because it failed to file its protest on time. Unsuccessful offerors that contest evaluation issues (rather than solicitation defects) have 10 days to file protests at GAO. That generally applicable 10-day deadline is tolled when a “debriefing” is required in FAR Part 15 (and certain Part 16) procurements. But that tolling rule doesn’t apply when the FAR only requires that the agency provide an “explanation” to disappointed offerors (e.g., in FAR Parts 8, 12, and 13 procurements)—and does not mandate a “debriefing.” GAO’s decision in Gorod Shtor illustrates this rule by dismissing the protest of an offeror that fell into this bid protest trap. Continue Reading Tricks of the Protest Trade: A Required “Explanation” Does Not Toll GAO’s Limitations Period—As a Mandatory “Debriefing” Does

Government contractors and health care companies have become increasingly concerned about the application of the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, and the Department of Justice’s (“DOJ”) and False Claims Act (“FCA”) relators’ arguments that the statute extends indefinitely the limitation period applicable to civil FCA cases. 31 U.S.C. §§ 3729-3733. Today, the Supreme rejected the unwarranted extension of the WSLA and properly limited the reach of that statute (and suspension of limitations periods) to the context of criminal law. The decision in Kellogg Brown & Root Services, Inc. v. U.S. ex rel. Carter (“KBR”) is an important victory for Government contractors, health care companies and other recipients of federal funding. It provides protection against stale claims, which should be barred by the statute of limitations. It is particularly noteworthy because it removes the risk of stale FCA claims that would otherwise be time barred and that have no connection to wartime activities, such as health care claims, or lawsuits related to other civilian agency programs, e.g., the Department of Agriculture program discussed in United States v. BNP Paribas SA. Continue Reading In an Important Victory for Government Contractors, the Supreme Court Holds that WSLA Does Not Toll the FCA’s Statute of Limitations

Concept_Phone-in-Motel-Room_399638Medium-224x300Last Friday, the Federal Circuit issued another decision in the relatively long-running saga of the SUFI Network Services, Inc. v. U.S. litigation, which relates to a telephone network installed by SUFI Network for guests in Air Force lodging facilities in Germany. The decision is down in the weeds of several damages law issues, but it appears to break some new ground that may be helpful for other contractors pursuing damages claims against the Government.

By way of necessary background, a 2004 decision by the ASBCA established that the Air Force Nonappropriated Funds Purchasing Office materially breached a contract by allowing/facilitating service members’ attempts to avoid SUFI Network’s rates (e.g., by using calling cards), resulting in a partial settlement agreement under which the phone network became the Air Force’s property. That partial settlement left open possibilities for litigating lost profits and other damages claims. The ASBCA then the Court of Federal Claims had issued rulings differing with respect to the damages amounts; last May, the Federal Circuit vacated “much of” the Court of Federal Claims’ “lost profits” decision. The lost profits claims have been the subject of a subsequent ASBCA decision on remand. While we await further review of the recent ASBCA decision, the Federal Circuit’s decision from last week addressed SUFI Network’s claims for attorneys fees and expenses related to its pursuit of lost profits, as well as the extent to which a contractor litigating a non-CDA claim can recover lost profits and overhead related to pursuing damages claims. The Federal Circuit came down on the contractor’s side on most of these issues.

The Federal Circuit’s opinion addressed five different legal questions. The issues of “interest” on the awarded attorneys fees and the “standard rates” awarded (sections III and IV of the opinion, respectively) appear to apply relatively straight-forward legal rules and do not merit comment. The court’s rulings regarding “exhaustion” of claims, ability to pursue attorneys fees, and whether the contractor could be awarded an amount to compensate it for overhead and lost profits related to attorneys fees paid to pursue its expectancy claims merit discussion. Continue Reading The Federal Circuit Addresses Interesting Damages Issues in Its Second SUFI Network Opinion

GSA FSS LogoThe Federal Circuit’s decision in CGI Federal Inc. v. United States addressed the relationship between FAR Part 12—which applies to acquisitions of commercial items—and FAR Subpart 8.4, which addresses the Federal Supply Schedule (FSS) program. The case involved an RFQ issued under the FSS program by the Centers for Medicare & Medicaid Services (CMS) for recovery audit contract services.

In its decision, the Federal Circuit agreed with the Court of Federal Claims (CFC) that although the protester did not submit a proposal, it qualified as an interested party to contest the terms of an RFQ when it filed a timely protest at GAO and, after GAO denied the protest, filed an action at the CFC within three business days asserting the same grounds. The decision shows that, when bringing serial protests before GAO and the CFC, it is important to diligently pursue the case by filing promptly.

The decision arguably is more interesting in its take on the relationship between FAR Part 12 and orders under FSS contracts. FAR § 12.302(c) prohibits the tailoring of solicitations for commercial items in a manner inconsistent with customary commercial practice unless a waiver is approved. The question in CGI Federal is whether this provision governs the placement of orders under existing FSS contracts. The Federal Circuit disagreed with GAO and the CFC on that question. GAO had rejected the argument that CMS was required to follow FAR Part 12 procedures in issuing the RFQs, including those concerning the tailoring of solicitations or contracts. GAO reasoned that FAR Part 12 does not mandate its use in connection with FSS procurements under FAR Subpart 8.4. The CFC found that the services solicited in the RFQs were commercial items and that the payment terms therein were inconsistent with customary commercial practice but agreed with GAO that FAR Part 12’s proscription does not apply to orders made pursuant to existing FSS contracts. The CFC reasoned that (i) FAR Subpart 8.4 does not expressly state that FAR Part 12 applies to orders made pursuant to an existing FSS contract and (ii) FAR Part 12 does not expressly state that its provisions apply to such orders.

The Federal Circuit disagreed. The Court recognized that Subpart 8.4 does not explicitly state that FAR Part 12 applies to orders made under existing FSS contracts. The Federal Circuit reasoned, however, that FAR Part 12 applied to the solicitations at issue because FAR Part 12 provides that it “shall be used for the acquisition” of commercial items. FAR 12.102(a). The Court concluded that the effort to purchase the services at issue qualified as such an “acquisition.” The Court stated that FAR Part 12’s prohibition against “solicitations or contracts” that include terms “inconsistent with customary commercial practice” applied to the RFQ at issue because it was a “solicitation” and the resulting order would be a “contract” as defined in the FAR. Finally, the appeals court reasoned that if there was any conflict among FAR Part 12 and Subpart 8.4, FAR 12.102(c) provides that Part 12 takes precedence over any aspect of the FAR that is inconsistent.

CGI Federal thus recognizes that the terms in RFQs issued under the FSS program must be consistent with FAR Part 12, which also takes precedence over Subpart 8.4 with regard to RFQs and FSS orders. It remains to be seen how the GSA, which administers the FSS program, and other agencies will react to the ruling. Following the decision, the establishment of FSS contracts and the issuance of orders thereunder must be consistent with FAR Part 12’s mandates regarding the treatment of commercial items. Although CGI Federal involved payment terms under an RFQ, the decision might be applied to a number of other terms that appear in FSS solicitations and RFQs, such as requirements to provide pricing data. CGI Federal invites greater scrutiny over the extent to which the placement of FSS orders—and the FSS program as a whole—truly is “commercial” as defined in the FAR.

In the decades since the enactment of the Contract Disputes Act (CDA), contractors, agencies, and the tribunals that decide government contract disputes have grappled with the question of what constitutes a claim. In 2010, the Federal Circuit ruled in M. Maropakis Carpentry, Inc. v. U.S. that to raise the adjustment of contract terms as a defense when litigating a CDA claim, a contractor must satisfy the CDA’s jurisdictional and procedural prerequisites by filing a claim with the contracting officer (CO) and receiving a final decision. To some, the Federal Circuit’s Maropakis decision appeared to impose an additional burden on contractors litigating CDA claims. Total Engineering, Inc. v. U.S., a recent decision from the CFC, helpfully suggests a limited application of the Maropakis decision.

Continue Reading Defenses to the Government’s CDA Claim Are Not Independent Claims