How the False Claims Act Holds Government Contractors Accountable for Production Quality Issues
Tuesday, December 27, 2022
False Claims Act Holds Government Contractors Accountable

A crucial component of contract fulfillment involves the quality of goods and services used in production as well as the finished output. When businesses contract with the federal government, the False Claims Act is a powerful tool to ensure that the quality of production meets expected standards every step of the way.

It is especially critical that government contractors meet a certain caliber, given their role in providing public goods and services. Oftentimes, government contractors are supplying lifesaving materials for service members, fundamental infrastructure needs, or important national security services. Whatever role a government contractor plays, if they misuse public funds, they may be held accountable via the False Claims Act. 

The Role of the False Claims Act in Recovering Taxpayer Dollars

The past few years have been especially successful ones recovering public funds under the False Claims Act (FCA). Fiscal year 2021 at the Department of Justice saw the second highest recovery period since 2014. Total settlements and judgements exceeded $5.6 billion, due to several high profile cases. Even more recently, the FCA has seen a notable expansion of what kinds of claims can be brought under the new Civil Cyber-Fraud Initiative, announced October 6th, 2021 by Deputy Attorney General Lisa O. Monaco.

Whistleblowers are crucial to a continued stream of enforcement actions under the False Claims Act. Reporting fraud is more than the right thing to do: It can also earn whistleblowers protections against employer retaliation, and up to 30% of the overall recovery in a successful case. Coming forward can save valuable taxpayer money, as well as in certain cases, lives. 

Using the False Claims Act to Combat Quality Issues

The False Claims Act holds that anyone who knowingly makes false claims to receive money from the federal government can be held liable for up to treble damages, plus separate financial penalties per false claim that are linked to inflation. The qui tam law was first passed to fight defense contractor fraud during the Civil War, and so it is especially fitting that it is still used to catch quality control issues in military and defense contractors today, as well as in numerous other industries. 

2022 Honeywell Body Armor Settlement

On November 8th, 2022, the conglomerate contractor Honeywell International Inc. agreed to pay $3.35 million to settle allegations that they knowingly sold defective material for bulletproof vests used by law enforcement officers. The issue in question involved the Honeywell patented Z Shield material, which was then sold to Armor Holdings, a bullet proof vest manufacturer. The case alleged that from 2000 to 2005, Honeywell knew that their Z Shield design degraded quickly under conditions of both heat and humidity, and would not hold up to ballistic use. Despite this, they continued to market and sell their faulty vests. 

Importantly, Honeywell was not a direct contractor with the government for the substandard material. Instead, the finished Zylon-containing vests were made by Armor Holdings. However, since the vests were ultimately purchased by federal agencies under a General Services Administration (GSA) contract and received partial funding under the Justice Department’s Bulletproof Vest Partnership program, the initial manufacturer of the faulty material, Honeywell, was able to be held accountable through the False Claims Act. 

Other Recent Government Contractor FCA Settlements

The Honeywell settlement is one particularly clear example of the possibly devastating toll that quality and design issues can take. Using faulty materials, failing to follow up on the results of internal studies and review, or delivering substandard products can quite literally cost lives. It can also create hazardous conditions, delay vital infrastructure, harm the health of vulnerable patients, and more.

Dia-Foot: $5.5 Million

In one recent case, a Florida medical company Foot Care Store, Inc. d/b/a Dia-Foot (Dia-Foot) allegedly sold custom diabetic shoe inserts that were in actuality made using generic foot models. The case ended in a $5.5 million settlement. Patients with diabetes can experience foot problems such as ulcers, nerve damage, poor circulation, and other issues so severe as to lead to amputation. It is unconscionable for manufacturers to provide faulty services and poor quality products to those in need. However, since Dia-Foot received reimbursement through Medicare, the fraudulent manufacturer was able to be pursued and brought to justice via a False Claims Act case. 

MOX Services LLC: $10 Million 

Some government contractors held accountable via the False Claims Act not only provide substandard materials, but also invoice for non-existent services. For instance, MOX Services LLC, formerly known as CB&I AREVA MOX Services LLC (MOX), allegedly submitted invoices to the Department of Energy totaling millions of dollars for materials that never existed for the construction of the Mixed Oxide Fuel Fabrication Facility at the DOE Savannah River Site in Aiken, South Carolina. This case involving non-existent materials and kickbacks delayed the construction of important energy infrastructure and leeched millions of dollars from South Carolina taxpayers before it was uncovered.

How Other Defense Contractors Have Been Brought to Justice for Production Quality Issues

In a 2022 settlement, Virginia-based HEYtex USA agreed to pay $3 million in order to resolve allegations that they knowingly provided fabrics to the American military that did not meet performance specifications. In the HEYtex case, unlike in the Honeywell settlement, the information was provided by an employee whistleblower who came forward with information that exposed the ongoing fraud. The whistleblower said that they brought their concerns to company management repeatedly, but was ignored until he or she finally escalated the complaint. The whistleblower was able to report that on over 100 occasions HEYtex allegedly certified that their materials and fabrics met all of the requisite standards for performance when it did not. 

United States Attorney Chris Kavanaugh said, "We applaud the courageous efforts of whistleblowers, who put their livelihood on the line to do what is right. Whistleblowers are essential to combatting fraud against the government and we aggressively investigate all such allegations."

Finally, two Georgia-based defense contractors settled another False Claims Act case for $900,000 when it was discovered that they provided parts to the US military that violated the Buy American Act. Certain substitute parts in their gear were manufactured in a non-qualifying country, but were used and approved anyways by the companies while continuing to collect payments from the US Army. 

Holding Government Contractors to a Higher Standard with the False Claims Act

Quality control is an issue that can have far-reaching consequences when government contractors are involved. When service members' lives are at stake or vulnerable populations are threatened, the FCA becomes more than just an anti-fraud law designed to help save taxpayer money. It can also help save lives by ensuring that critical contractors follow through on their promises.

If you have information about quality control problems or other kinds of fraud in your company that is on a government contract, speak to a qualified qui tam attorney today. Speak up, save money, save lives. 

 

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