Organizational Conflicts of Interest Lead to $425,000 False Claims Act Settlement
The United States Department of Justice settled a case against an instructional systems, training, and logistics service provider to the United States Navy to resolve allegations that the government contractor failed to disclose organizational conflicts of interest (OCI) “in connection with the award and performance of task orders on government contracts.” For allegedly making false claims, Cape Henry Associates (Cape Henry) paid $425,000. Under the False Claims Act, a whistleblower could have reported this fraud against government procurement rules and shared in 15-25% of the government’s recovery.
According to the allegations, Cape Henry failed to disclose conflicts of interest with subcontractors on Navy SeaPort-e, Army, and General Services Administration (GSA) contracts. In one allegation of failure to disclose OCI, the contractor hired a subcontractor in which which one of its officers had an ownership interest. Cape Henry also worked with a subcontractor, Q.E.D. Systems Inc. (Q.E.D.) for advisory & assistance services (A&AS) on a Navy SeaPort-e contract, while at the same time subcontracting directly with one employee of Q.E.D. The same employee was simultaneously providing A&AS services to the Navy program office that administered the contract, and Cape Henry allegedly did not disclose this convoluted conflict of interest.
The Department of Defense and other government departments and agencies require contractors to disclose any OCI, because such conflicts can impact the quality of products or impartiality of services the government receives from contractors. All of the Special Agents in Charge for each OIG and military investigation unit for this case reiterated their commitment to protecting taxpayer dollars by ensuring fair play in government contracting. The Principal Deputy Assistant Attorney General, head of the Justice Department’s Civil Division, noted, “It is critical that companies disclose potential conflicts of interest to protect the integrity of the federal procurement process.”
Employees of government contractors who find out that their employer has a conflict of interest in connection with a contract can step forward to report fraud. The False Claims Act protects and rewards those who bring fraudulent practices to light through qui tam lawsuits.