Implied Certifications of Invoices Under the Civil False Claims Act

By Dick Lieberman, Consultant and Retired Attorney

The Civil False Claims Act, 31 U.S.C. §§ 3729-3733, generally prohibits any person from knowingly causing to be presented to the government a false or fraudulent claim for payment or approval, or making or using a false record or statement to get a false claim paid or approved.

To prove a false claim, there are four elements:

(1) a false statement or fraudulent course of conduct

(2) made with the knowledge of falsity (actual knowledge, acting in deliberate ignorance of the truth or acting in reckless disregard of the truth, and no proof of specific intent to defraud is required)

(3) that is material (has a natural tendency to influence or be capable of influencing the government’s decision to pay)

(4) that results in a claim to the government.

But what about routine invoices that are submitted to the Government which do not contain an “objectively false” statement, but where the contractor knows that it has failed to comply with a material provision of a government contract? In other words, are the company’s actions a breach of contract, or a violation of the False Claims Act? The Fourth Circuit recently joined some other circuits in declaring that such invoices, although not actually certified, had “implied certification” and were false claims under the False Claims Act. United States v. Triple Canopy, Inc ex rel Badr. Nos. 13-2190, 13-2191 (Fourth Cir. Jan. 8, 2015).

In Triple Canopy, the Government awarded a fixed price contract for security guard services in Iraq. The contract required that all employees receive initial training on the weapon they carried, and that they had qualified on a U.S. Army qualification course, by meeting a marksmanship score of 23 out of 40. The contractor was to maintain qualifying scores in personnel files for one year. There was nothing in the contract which conditioned payment on compliance with these requirements.

Triple Canopy hired 332 Ugandan guards to serve in Iraq under the supervision of 18 Americans. Although the guards’ personnel files indicated that they met the marksmanship score, upon arrival, the supervisors learned that these guards could not “zero” their rifles and were unable to satisfy the qualifying score of 23 on marksmanship. Regardless, Triple Canopy used the guards and submitted its monthly invoices for them. After a failed attempt at training the guards, a Triple Canopy supervisor directed that false scorecards be created for the guards and placed in their personnel files. The guards never qualified, even upon leaving the guarded facility.

Triple Canopy presented 12 monthly invoices during its one year contract totaling over $4 million. Each invoice listed the number of guards, and each was approved and accepted by a Contracting Officer Representative (“COR”) who filled out a DD-250 form, Material Inspection and Receiving Report, although no DD-250 included any certification from Triple Canopy. A Whisleblower (Badr) began a false claims action against Triple Canopy, but a District court in Alexandria dismissed the action because the invoices did not contain an “objectively false statement.” On appeal, the Government said that Triple Canopy had submitted false claims because the monthly invoices billed for services even though the company knew its guards had failed to comply with an important responsibility—the marksmanship requirement.

The Fourth Circuit reversed and reinstated the case, stating that the False Claims Act was broad, and that a claim for payment is false when it rests on a false representation of compliance with an applicable contractual term, and such false certifications can either be “express” or “implied.” “[C]laims can be false when a party impliedly certifies compliance with a material contractual condition...”

The 4th Circuit held that “the Government pleads a false claim when it alleges that the contractor, with the requisite scienter [knowledge of falsity] made a request for payment under a contract and ‘withheld information about its noncompliance with material contract requirements.’ The pertinent inquiry is ‘whether through the act of submitting a claim, a payee knowingly and falsely implied that it was entitled to payment’” citing U.S. ex rel Lemmon v. Envirocare of UT, 614 F. 3d 1163, 1169 (10th Cir. 2010).

With this case, it now appears that eight Circuit courts have held that “implied certification” of invoices is a valid theory for a False Claims Action, and no “objectively false” statement or claim is required. Two Circuit Courts have rejected implied certification, and three Circuit courts have not yet settled the issue in their areas.

TIPS:

(1) A contractor must comply with all material aspects of its contract, ensuring that its invoices are not false “by implication.” When Triple Canopy discovered the marksmanship problem, it could have sought a modification from the Government permitting a lower score (with some kind of price reduction). Contractors should not ignore compliance with any material condition in a government contract.

(2) The Government could eliminate the need for “implied certification” by requiring in the Federal Acquisition Regulation (“FAR”) that every invoice, in order to be paid, must contain a statement that the contractor has fully complied with all material aspects of its contract during the period. This certification would be similar to, but could be simpler than the certification required for all government contract claims over $100,000. The claim certification reads: “I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable...” This could easily be modified for invoices to read: “I certify that this invoice is presented in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; and that the amount invoiced accurately reflects the amount that the Government must pay in accordance with the contract.”

(3) Contracting Officers may eliminate this problem by requiring, in the contract terms, that every invoice be certified as stated above, as a condition for payment.

Copyright 2015 Dick Lieberman, Permission Granted to the Maryland PTAC. This article does not provide legal advice as to any particular transaction.