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Brian Waagner

Brian is the leader of the Government Contracts practice group at Husch Blackwell LLP. Brian represents contractors in federal, state, and local bid protests, contract administration and compliance matters, and in litigation involving complex claims and disputes.

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In order to bring a bid protest in the Court of Federal Claims, you must have standing. To win the protest, you have to show prejudice. Although distinct, these two requirements are related and often confused. The Federal Circuit’s decision in American Relocation Connections, L.L.C. v. United States, No. 2019-1245 (Fed. Cir. Oct 2019), explains the difference between the “standing” needed to bring a bid protest and the “prejudice” needed to win.

Standing involves the threshold legal question of whether the protester has alleged a sufficiently direct economic interest to bring the case. It operates as a limit on the universe of plaintiffs eligible to file a protest. A protester has standing to challenge the award of a federal contract in the Court of Federal Claims only if it was an actual bidder or offeror that had a “substantial chance” of winning the contract. For pre-award protests, only a prospective offeror that would suffer a “nontrivial competitive injury” has standing to protest.

Unlike standing, “prejudice” is the ultimate factual question of whether the protester was actually harmed by a procurement error. Establishing prejudice is an element of the protester’s burden of proof. Without it, the protest will fail.

Contractors are now familiar with the Supreme Court’s June 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar [PDF]. That decision recognizes False Claims Act liability for implied false certifications. But it also holds that FCA liability is available only when the false statement or omission is “material” to the Government’s decision to pay a claim. Our discussion of Escobar is available here.

Over the last 18 months, courts across the country have been asked to determine the impact of the Escobar decision. Ten of the eleven U.S. Circuit Courts of Appeal have interpreted Escobar. Numerous U.S. District Courts have applied Escobar in resolving pre-trial motions. Cases based on “garden-variety breaches of contract or regulatory violations” are being thrown out. Even jury verdicts are being overturned for insufficient evidence of materiality. There is one inescapable conclusion from these post-Escobar decisions: materiality matters.

In this entry, we discuss two recent decisions that illustrate the impact of Escobar. One reaffirms the notion that, after Escobar, minor non-compliance with a regulatory requirement will not normally support FCA liability. The other highlights the critical role the government’s actions can play in establishing materiality. Together they reject jury verdicts imposing more than $1 billion in False Claims Act liability.

The General Services Administration estimates the size of the federal market for commercial products to be about $50 billion a year. Manufacturers and distributors of commercial products have seen GSA’s multiple award schedule contracts as a good way to way to access federal customers. But a GSA schedule contract does not guarantee sales and the process of obtaining and adhering to such a contract presents its own headaches.

Soon there will be a better way.

Section 846 of the National Defense Authorization Act for FY 2018 establishes a program that will allow federal agencies to purchase commercially available off-the-shelf (COTS) items through commercial e-commerce portals that are currently available only to the private sector. As long as the procurement is under the new $250,000 Simplified Acquisition Threshold, COTS products (not services) will be available for purchase Government-wide, presumably without additional competition and without a lengthy list of FAR clauses incorporated by reference.

Under the program, GSA will enter into “multiple contracts” with “multiple e-commerce portal providers.” To the maximum extent possible, the Government will adopt and adhere to standard terms and conditions established by the e-commerce portals themselves.

The 2017 National Defense Authorization Act, Pub. L. No. 114-328 (Dec. 23, 2016), introduces major changes to the Defense Department healthcare program known as TRICARE. By this time next year, we’ll see a new program to contain the cost of prescription drugs at retail pharmacies, contractual incentives for improving the quality of healthcare and…

Contractors interested in the application of FOIA Exemption 4 should take note of the Ninth Circuit’s decision in American Small Business League v. Dep’t of Defense, No. 15-15120 (9th Cir. Jan. 6, 2017). The issue in the case was whether a declaration submitted by a Sikorsky Aircraft Corporation employee was sufficient to show the competitive harm necessary to withhold small business subcontracting data obtained from Sikorsky. The Sikorsky declaration was short, but it identified Sikorsky’s competitors and asserted that its small business subcontracting data could be used to gain a competitive advantage.

In a November 2014 order, the District Court found the declaration too vague. It lacked “reasonably specific detail” as to the likelihood of competitive injury. It did not show how information found in the subcontracting plan would be “likely to cause substantial competitive injury.” Proof of competitive harm was based only on the fact that a Sikorsky competitor “could” use Sikorsky’s data to cause harm. In the words of District Judge William Alsup, “[t]hat is not enough to grant summary judgment for the agency.” The District Court ordered the government to produce Sikorsky’s master subcontracting plan, subject only to appeal.

GAO has published its decision denying multiple protests of the Defense Health Agency’s decision to award the T-2017 managed care support contracts to Humana Government Business, Inc. and Health Net Federal Services, LLC. Humana won the TRICARE contract for the east region with a total evaluated price of $40.7 billion. Health Net won the west region contract with a total evaluated price of $17.7 billion.

One of the key issues addressed in GAO’s decision was the challenge to Humana’s past performance rating. Anthem subsidiary WellPoint Military Care Corporation argued that DHA placed so much weight on prior experience as a TRICARE prime contractor that incumbency amounted to an unstated evaluation criterion. In WellPoint’s view, incumbency was the “golden ticket to attaining the highest Substantial Confidence rating.”

GAO found no merit to WellPoint’s argument. There was nothing in the record to suggest that DHA treated incumbency as an unstated evaluation criterion. Indeed, DHA considered WellPoint’s own past performance superior to that of two other incumbent TRICARE contractors—Health Net and UnitedHealth Military & Veterans Services, LLC.

GAO also rejected the legal basis for WellPoint’s argument. While incumbency is not necessarily a golden ticket, GAO also found that it was reasonable to give credit to Humana for its prior experience managing a large TRICARE regional contract. In GAO’s view, “it is not unreasonable for an agency to place particular emphasis on a firm’s performance as an incumbent contractor, since such performance may be reasonably viewed as a more accurate indication of likely future performance . . . .”

Incumbency is not necessarily a golden ticket, but it certainly can’t hurt.

The Supreme Court’s unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (U.S. June 16, 2016), upholds the viability of the implied certification theory of False Claims Act liability. But it also makes cases arising from minor instances of noncompliance much harder to prove. The Court held that a knowing failure to disclose a violation of a material statutory, regulatory, or contractual requirement can create False Claims Act liability. The requirement need not be an express condition of payment, but it must be material to the Government’s decision to pay.

The requirement for proof of a misleading half-truth

Those hoping that the Court would eliminate implied certification altogether will be disappointed with the decision. It opens up the possibility of new False Claims Act cases in the Seventh Circuit and in other jurisdictions that had rejected the implied certification theory or limited its application to conditions of payment. Some cases that might have been thrown out on a motion to dismiss might stand a better chance of surviving through discovery and trial.

The Court nevertheless takes strong steps to limit misuse of the implied certification theory. According to the opinion in Escobar, liability under the implied certification theory can be imposed only when two conditions are satisfied. First, the claim for payment must make “specific representations about the goods or services provided.” An invoice that makes no affirmative statement about the quality of a contractor’s goods or services cannot be the basis for an implied certification.

[UPDATE: The Supreme Court resolved the Escobar case in a unanimous decision published on June 16, 2015. A link to our discussion of the Court’s opinion is available here.]

In some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.

This week, the Supreme Court heard oral arguments in Universal Health Services, Inc. v. United States ex rel. Escobar, Docket No. 15-7, a case involving the viability of the implied certification theory. Here, we look at the questions posed during oral argument to see if we can infer how the Court might resolve the case.

The Supreme Court agreed to consider two questions posed in Escobar. First, the Court agreed to address the current split in the circuits as to the viability of the implied certification theory. The First Circuit’s decision in United States ex rel. Escobar v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015), broadly adopts implied certification. The Seventh Circuit’s decision in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), firmly rejects it.

The Government Accountability Office has been publishing its annual bid protest statistics report to Congress since fiscal year 1995. That year GAO received 2,334 new protests and closed 2,528. For FY 2015, GAO reports that it received 2,496 new protests and closed 2,647.

Given the changes in contract law and the significant increase in expenditures on federal contracts over the last 20 years, these figures are remarkably consistent.

For Fiscal Year 2015, GAO reports that protesters obtained some form of relief in 45 percent of cases closed, either as the result of an agency’s voluntary corrective action or a decision sustaining some or all of the protest grounds. This “effectiveness rate” is marginally higher than it has been in the previous several years, when it hovered between 42 percent and 43 percent.

Winning bases for bid protests

One interesting piece of data added to GAO’s annual report in the last couple of years is the summary of the “most prevalent grounds for sustaining protests.” This new data element is the result of a requirement in a 2013 amendment to the Competition in Contracting Act. See 31 U.S.C. § 3554(e)(2).

In FY 2015, GAO identified five grounds of protest as the most prevalent. Even though it is drawn from only a small subset of protests that are actually resolved on the merits, GAO’s list of reasons for sustaining protests provides a roadmap for future protesters. Here is GAO’s list, along with a brief summary of the decision that GAO cites to illustrate it.

Criminal charges for minimum wage violations are certainly rare. But the November 2015 indictment of electrical contractor Marcus Butler shows that they are possible. Mr. Butler faces jail time and heavy fines for allegedly making false certifications regarding $126,514 in Davis-Bacon Act wages on three HUD multi-family housing projects.

Given the rarity of criminal indictments for wage-and-hour violations, I infer that Mr. Butler’s alleged conduct was much worse than simply miscalculating the prevailing wage or losing track of some payroll records. But there is nothing in the indictment that would reveal the underlying aggravating factors that motivated it. The Government asserts simply that Mr. Butler participated in a “scheme” and that he “knowingly and willfully” overstated wages and benefits on his 61 separate certified payrolls (DOL Form WH-347).

It will probably be some time before we see whether this is case is the result of overreaching conduct by DOL and government attorneys (like another recent DOL case) or the application of the new Justice Department policy set forth in the Yates Memorandum on Individual Accountability for Corporate Wrongdoing. This new policy will almost certainly increase the number of criminal charges arising from ordinary non-compliance and administrative oversight. Husch Blackwell’s client alert on the Yates Memorandum is available here.

Either way, now is the right time for federal contractors to take on the task of reviewing and updating their own HR policies and practices.