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Government Contracts Advisor Industry Insights & Analysis

CoFC Strikes Down The Government’s Fraud Counterclaims Relating to The Contractor’s Damages Estimates

Posted in Claims & Disputes, Fraud & Abuse

This blog post was co-authored by Kevin Slattum and Justin Ganderson.

When it comes to contractor claims under the Contracts Disputes Act (CDA), it’s becoming increasingly apparent that the government believes the best defense is a good offense.  Since the Court of Federal Claims and Federal Circuit issued their decisions in Daewoo Eng’g & Constr. Co. v. United States, 73 Fed. Cl. 547, 597 (2006) affirmed 557 F.3d 1332 (Fed. Cir. 2009), we’ve noticed an increase in fraud counterclaims actually asserted by the government or raised as a scare tactic during pre-trial communications.  The available offensive weapons include the False Claims Act (31 U.S.C. § 3729), the  CDA’s fraud provision (41 U.S.C. § 7103) and the forfeiture of any fraudulent claim (28 U.S.C. § 2514).  If found liable under these statutes, a contractor may be required to pay up to treble damages and other penalties which potentially dwarf its underlying claim, and may forfeit its entire claim against the government – even where the fraud permeates only a small portion of the claim. 

The most recent case dealing with this subject is Hernandez, Kroone and Associates, Inc. v. United States, CoFC No. 07-165C (March 29, 2013).  In that decision, the government raised numerous fraud counterclaims arising from the contractor’s claim seeking equitable adjustments to its contract.  Most notably, the government argued that many of the contractor’s estimates of its requested adjustments to its contract were a “falsity.”  In each instance, Judge Merow found that the government was not able to fulfill its burden of proof – which varies depending upon the underlying statutory basis of the counterclaim – and demonstrate that the estimates were false when submitted.  (The government’s offered proof often rang hollow and had no basis.)

This case demonstrates how aggressive the government can be in its attempt to find fraud in a contractor’s claim.  When drafting a claim and calculating potential damages, a contractor must carefully review every aspect of its claim because the government will be looking for fraud in every corner – even damages estimates made in good faith and based upon documents.  A failure to craft an accurate and supportable claim or the failure to disclose knowledge about estimates or otherwise be fully transparent will further open the door to fraud counterclaims and may lead to grave consequences.  Please let us know if you have any questions about the best practices to employ when drafting a claim under the CDA.