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Originally published in V&E Government Contracts
E-communication Update, July 18, 2012
On May 8, 2012, the Department of Justice (DOJ) announced that
federal contractor Direct Resource, Inc., had agreed to pay
$450,000 to resolve allegations that the company had violated the
Trade Agreements Act (TAA), 19 U.S.C. § 2501, et
seq. The TAA and its implementing regulations require
that products sold to the federal government under certain
contracts be wholly manufactured or "substantially
transformed" in the United States or in certain
"designated countries." Direct Resource settled
allegations that it had sold products made in China pursuant to
contracts it held with the General Services
Administration. China is not a "designated country"
under the TAA.
DOJ's agreement with Direct Resource is only the latest in a
series of settlements of TAA-related cases brought by
whistleblowers under the qui tam provisions of the False
Claims Act (FCA), 31 U.S.C. § 3729, et seq.
Several of the settlements resulted from qui tam cases
brought by competitors or former employees who received a portion
of the settlement amount.
In recent years, contractors have paid the following amounts to
settle FCA allegations that included allegations that the
contractors made false claims or false statements in connection
with TAA violations:
Contractor
Date
Settlement Amount
Cablexpress Corp., d/b/a CXtec
April 2012
$2,000,000
Home Depot, Inc. and Home Depot USA, Inc.
October 2011
$2,250,000
Fastenal Company
January 2011
$6,250,000
Furuno U.S.A. Inc.
August 2010
$695,000
Oce North America
September 2009
$1,200,000
J Squared Inc., d/b/a/ University Loft Company
June 2009
$400,000
Mitel, Inc.
February 2009
$1,300,000
Tifco Industries, Inc.
February 2009
$1,600,000
W.W. Grainger Inc
July 2008
$6,000,000
These settlements followed a series of multi-million dollar
payments by office supply product vendors Corporate Express,
Staples, Office Depot, and OfficeMax to settle FCA/TAA allegations
in 2005 and 2006. Like several of the settlements above, a
competitor received a portion of the settlement amounts pursuant to
the FCA qui tam provisions.
As contractors compete for diminishing contracting dollars in
coming years, they should ensure that they remain in compliance
with the TAA and other source restrictions affecting federal
contracts (such as the Buy American Act), as well as restrictions
affecting state and local contracts using federal funds (such as
the Federal Transit Administration's Buy America
requirements). Even inadvertent violations of these
restrictions can lead to investigations and significant financial
consequences. As demonstrated by the settlements listed above,
government auditors and competitors can be expected to be
increasingly aggressive in reporting, investigating and prosecuting
violations of these requirements in the coming years.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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President Obama’s Export Control Reform initiative has taken a significant step forward with the final rule changes published by the U.S. State Department and U.S. Department of Commerce on April 16, 2013.
While multi-million dollar False Claims Act settlements paid by Government contractors get the lion’s share of the press, those with an attentive eye will have noticed a recent steady stream of more "contractor friendly" FCA decisions flying just under the national press’s radar.
The month of May saw a number of proposed and implemented developments that were equally applicable to nonprofit and for-profit contractors and grant recipients.
The National Defense Authorization Act of 2013 requires the Comptroller General to report on the effect of reducing the allowable costs of contractor compensation to be equivalent to the compensation of the president or vice president of the United States.
The Proposed Rules introduced by the U.S. Department of Commerce’s Bureau of Industry and Security and the U.S. State Department’s Directorate of Defense Trade Controls, a part of the on-going Export Control Reform initiative, are consistent with the previous changes made as part of the initiative.
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