Government Procurement Rule of Origin-Related Qui Tam Action

We are writing to let you know about the settlement of a False Claims Act (“FCA”) case, involving country of origin claims for construction contracts funded by the U.S. government.

Earlier this week, the U.S. Department of Justice (“DOJ”) announced that a U.S. manufacturer of glass space frames agreed to pay $3 million ($500,000 criminal fine, $2.5 million civil fine) to resolve allegations that it improperly used foreign materials on construction projects involving federal funds.  A copy of the DOJ press release is available here.

As you know, contracts funded by the U.S. government are generally subject to laws requiring the use of domestic materials (e.g., the Buy America Act, the Federal Transit Administration’s Buy America provision, §1605 of the American Recovery and Reinvestment Act, etc.).  Here, the underlying complaint alleged that from 2004 to 2013, the Company knowingly – and in violation of its contractual obligations – used noncompliant foreign materials on several federally funded construction projects.  More specifically, the complaint alleged that the Company repackaged materials and falsified documents relating to certain federally funded construction projects in order to hide that the materials used were noncompliant foreign materials.

There are several key takeaways from this settlement.

First, this settlement underscores the government’s continued interest (and willingness) to prosecute government procurement rule of origin violations.  In announcing this settlement, the U.S. Attorney reiterated that “domestic preference statutes are designed to promote American businesses and to protect U.S. economic interests.  When companies subvert those interests by violating ‘Buy American’ provisions…and when they undertake efforts to conceal that they have done so…the U.S. Attorney’s Office will pursue all appropriate criminal and civil sanctions”.

Second, this case underscores the growing trend of private parties initiating their own trade enforcement actions.  Here, the suit was initiated by a former employee, who provided evidence regarding the knowing use of noncompliant foreign materials on several specific federally-funded projects.  The former employee stands to receive approximately $400,000 from the settlement.

Third, as part of the settlement agreement, the Company agreed not to contest debarment from federally funded projects.  While the Company stated that Buy America requirements applied to only a small part of its business, such a disbarment could have severe consequences for companies whose business includes a meaningful amount of government procurement sales/contracts.

To that end, it is more important than ever that companies have documented controls of their government sales.  With good internal controls, most companies will be able to protect themselves from these types of costly enforcement actions.

We hope this is helpful.  We have regularly advise clients on compliance with government procurement related rules of origin (including implementing effective controls to prevent situations like the one described above).  If you have any questions about the settlement or these issues more broadly, please let us know.

Best regards,

Ted

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