In a Memorandum Opinion issued on June 17, 2016,
the U.S. District Court for the District of Columbia applied the
so-called "presumed loss" rule to assess the full
contract value as the measure of the government's loss for
purposes of sentencing an individual convicted of misusing the
SBA's 8(a) program to win set-aside contracts. See United
States v. Singh, Criminal Action No. 15-173 (RBW) (D.D.C. Jun
17, 2016). This appears to be the first published court decision
enforcing the controversial rule since its passage by Congress as
part of the Small Business Jobs Act of 2010.
As brief background, prior to the 2010 Jobs Act, the Government
had difficulty proving damages under the False Claims Act where a
contractor misrepresented its size or socio-economic status to win
set-aside government contracts. Practically speaking, the
Government rarely suffers any actual economic harm in such cases.
The fact that an ineligible firm improperly receives a contract set
aside for small businesses may violate public policy, but it rarely
increases the price of the contract.
Section 1341 of the Jobs Act purported to address this issue by
establishing a rebuttable presumption. Specifically, the statue
provides that where a firm willfully misrepresents fits size or
status to receive the award of a federal contract, subcontract,
grant or cooperative agreement that has been set aside for small
businesses, the loss to the government is presumed to be the
"total amount expended" by the government under the
contract, subcontract, grant or cooperative agreement. See our blog
post on the 2010 Jobs Act.
In 2013, the Small Business Administration (SBA) issued final
regulations implementing section 1341 of the Jobs Act. The
regulations state in part that the presumed loss rule "may be
determined not to apply in the case of unintentional errors,
technical malfunctions, and other similar situations that
demonstrate that a misrepresentation of size was not affirmative,
intentional, willful or actionable under the False Claims Act
...." 13 C.F.R. § 121.108(d).
Turning back to U.S. v. Singh, the defendant in that
case was found to have used his status as a disadvantaged
individual to obtain 8(a) status for his company. After his company
completed its term in the 8(a) program, the defendant formed a
second company that applied for and received 8(a) certification,
and thereafter won 26 contracts under the 8(a) program with a
collective amount of over $8 million, but using almost entirely the
resources of the previous, gradated company. The defendant pled
guilty to violating the Major Fraud Act.
In sentencing phase, the Government argued that the loss it
suffered as a result of the defendant's misrepresentation was
the "full value" of the 8(a) contracts his company was
awarded, citing the SBA's presumed loss rule. The defendant
argued that the presumed loss rule should not be applied because,
despite the misrepresentation, his company "provided valuable
services to the government" and made only $28,768 in profit.
The Court rejected this argument, construing the SBA regulation
"to indicate that the only permissible means by which the
presumption of loss may be rebutted would be through the
introduction of evidence establishing that one of those
circumstances enumerated in 13 C.F.R. § 121.108(d)." In
other words, fact that the Government received the exact services
it sought to purchase is irrelevant. The Court thus ruled that the
amount of the loss to the Government under the fraudulently
procured contracts would be deemed to be the full value of the
If the Singh Court's reasoning is followed by other
courts, companies found guilty of misrepresenting their size or
socio-economic status to win set-aside contracts may have
difficulty rebutting the presumption that the government's loss
is equal to the full value of the contract.
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