Is the False Claims Act Becoming a Catch-All Penalty for Any and Every Contractual Breach?

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A recent Department of Justice (DOJ) settlement announcement suggests that the government intends to continue to use the False Claims Act (FCA), rather than more traditional breach of contract or tort claims or regulatory authority, to administer its contracts. On March 7, 2016, the DOJ announced its $3 million settlement with ArmorSource LLC to resolve FCA allegations against the company. ArmorSource contracted with the U.S. Army in 2006 to provide ballistic helmets for combat. In 2010, the Army recalled the helmets after rounds of failed ballistic safety tests. The government alleged that from 2006 to 2009, ArmorSource delivered helmets that had been manufactured and tested using methods that did not conform to the contract requirements and failed to meet the contract performance standards.

ArmorSource subcontracted the manufacturing of the helmets to Federal Prison Industries, Inc. (FPI). Two FPI employees filed a qui tam lawsuit under the FCA. The relators claimed that ArmorSource knew that the helmets they provided were defective, and in fact directed their employees to use substandard and defective materials and prohibited procedures to make the helmets. The relators further contended that ArmorSource implemented practices to conceal the defects in the helmets from the Department of Defense, and submitted false certifications to induce the department to pay them for the purchase of the helmets. The government chose not to intervene in the case. The relators will receive $450,000 of the settlement under the provision of the FCA that allows individuals suing on behalf of the government to receive a share of any recovery.

A representative for the DOJ claimed the settlement is a “reminder to all government contractors that they must deliver on their promises.” The settlement suggests, however, that the government is going to continue taking an expansive view of the scope of the FCA, using the statute as a catch-all penalty for any and every contractual breach.

The qui tam case is U.S. ex rel. Ponzio, et al. v. Rabintex Industries, Ltd., et al., No. 1:10-cv-588 (E.D. Tex.).