Federal Contracting is Lucrative but Ripe with Danger

In September the Navy will begin operational assessments of the Northrop Grumman MQ-4C Triton at NAS Patuxent River, Maryland.  The Triton has also been undergoing electromagnetic testing to ensure that any one of its systems does not interfere with another.  Triton picture
The Triton is a High Altitude Long Endurance (“HALE”), or more specifically a Broad Area Maritime Surveillance (BAMS) UAS that builds upon Northrop’s Global Hawk UAS. Besides the US, the Royal Australian Air Force is the only other customer for this MTCR Category I and ITAR-controlled aircraft.

Government contracts like this one are lucrative not only for the prime contractor (in this case, Northrop Grumman),  but also its subcontractors.  Small UAS businesses might not have a shot at even bidding on a contract of this size, but there are still numerous opportunities for small businesses.  These include subcontracting with the prime contractor or its subcontractor, bidding on a small contract, or obtaining a grant through the SBIR (“Small Business Innovation Research” or STTR (“Small Business Technology Transfer”) programs.

Make sure you are ready before you bid on a contract or sub-contract, and in particular make sure you will qualify as “responsible” under the Federal Acquisition Regulations.  And more importantly, do you even know how to find contracts on which you might want to bid?

But perhaps the biggest landmine for government contractor is the False Claims Act (“FCA” – 31 U.S.C. §§ 3729 – 3733).  This law was passed during the Civil War to combat rampant contractor fraud and was amended surrounded both World Wars (also times ripe for fraud).  Fiscal Year 2014 was a record year in FCA monetary recovery, aided in no small part by inside whisleblowers through “Qui Tam” lawsuits.  Two recent court cases are important for contractors.

In May, the Supreme Court ruled unanimously in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, No. 12-1497 (May 26, 2015) that the Wartime Suspension of Limitations Act (WSLA), which suspends “the running of any statute of limitations applicable to any offense” involving fraud against the Federal Government, only applies to criminal offenses. Civil false claims are now back to six years.

However, this may be a short-lived victory for defense contractors.  The Fourth Circuit Court of Appeals, which has jurisdiction over Virginia and most defense contractors, adopted the “implied certification” theory in United States ex rel. Badr v. Triple Canopy, Inc., No. 13-2101 (4th Cir. Jan. 8, 2015).  This theory states that a claim for payment is false when it rests on “a false representation of compliance with an applicable . . . contractual term.”” Therefore, the certification can be either express of implied.” For example, if you certify compliance to an underlying contract for delivery of a product to the government or your prime contractor, you are certifying compliance with each and every one of the terms of the contract.  If you haven’t seen a government contract, they’re long with many provisions incorporated by reference – including manuals you may have never seen.

United States v. Triple Canopy is headed to the Supreme Court, but in the meantime “implied certification” is increasing the uncertainty and risk associated with many government contracts.  The False Claims Act, and therefore implied certification, affects documents provided to the government in relation to grants as well.