United States: Legal Fees Spent Successfully Defending Qui Tam Whistleblower Claims May Be Recoverable Even Under Fixed-Price Contracts

Last Updated: November 6 2018
Article by Lawrence S. Sher

As a lawyer who regularly defends qui tam suits brought against government contractors under the False Claims Act (FCA), a recent decision from the U.S. Court of Federal Claims in The Tolliver Grp. Inc. v. United States, Fed. Cl., No. 17-1763C (J. Lettow 10/26/18) prompted me to remind federal government contractors defending civil qui tam lawsuits under the FCA, that the majority of their legal fees spent successfully defending a relator's whistleblower suit may be reimbursable by the government. Federal Acquisition Regulation (FAR) 31.205-47 provides that up to 80 percent of a contractor's legal costs incurred in connection with successfully defending an FCA action may be allowable to the extent such costs are reasonable and not otherwise unallowable or recovered. See FAR 31.205-47(b), (e).1

In The Tolliver Grp. Inc. case, Tolliver sought recovery under the Contact Disputes Act (CDA), 41 U.S.C. 601, et seq., for $195,889.78 in legal fees it spent defending against, and ultimately having the Court dismiss, a qui tam suit alleging that Tolliver falsely certified compliance with the terms of a fixed-price, level-of-effort contract. Specifically, the relator alleged that Tolliver created several technical manuals for the Army's Hydrema 910 Mine Clearing Vehicle without a required government technical data package. The government declined to intervene in that case, nor did it seek dismissal, and Tolliver successfully defended the qui tam action on its own, persuading the district court to dismiss the relator's complaint. That dismissal was affirmed on appeal. See United States ex rel. Searle v. DRS Tech. Servs., No. 1:14-cv-00402, 2015 WL 6691973 (E.D. Va. Nov. 2, 2015), aff'd, 680 Fed. Appx. 163 (4th Cir. 2017).

Following its success in the qui tam suit, Tolliver timely submitted a claim to the contracting officer seeking an equitable adjustment for "allowable legal fees" incurred in defending the qui tam suit. That sum represents 80 percent of its attorneys' fees, the maximum allowed by the FAR for a successful defense of an FCA Act suit. See FAR § 31.205-47(e)(3).2  Tolliver's claim was denied by the contracting officer on the basis that Tolliver was performing under a "firm fixed price order which contains no provisions [for the government to assume the risk of legal costs]" and because the legal costs were not recoverable under FAR Subpart 31.2 as the legal costs were "neither incurred specifically for the contract nor provided the government with a benefit."

Tolliver appealed the contracting officer's denial to the U.S. Court of Federal Claims, which held that Tolliver stated a plausible claim for recovery of its legal fees under the contract and the FAR. Of note, the Court emphasized that fixed-price contracts "are not categorically immune from applicability of cost principles relief," and that FAR Part 31.2 applies to fixed-price development contracts that are negotiated on the basis of cost and where cost analysis is performed as required by FAR 14.505-1(c). In so holding, the Court rejected the government's argument that the fixed-price nature of the contract defeated Tolliver's claim because the contract did not specifically permit for recovery of legal costs. Although Tolliver's fixed-price development contract did not contain an express or implied term allowing cost reimbursement, the Court explained, the cost principles of FAR Subpart 31.2 provide that "[t]he cost principles and procedures in subpart 31.2 and agency supplements shall be used." (Emphasis in original).

Because the Court found Tolliver successfully defended the qui tam suit and sought 80 percent of its legal costs, and those expenses were alleged to be reasonable, it held Tolliver sufficiently alleged the elements necessary to assert a viable claim under the CDA and the FAR for recovery of those legal costs.3

The Court's decision in Tolliver allowed the contractor's claim against the government for recovery of 80 percent of its legal costs spent successfully defending a relator's qui tam FCA action to proceed, even under a fixed-price contract that did not specifically permit recovery of such costs. While Tolliver had a services contract with the Army, legal cost recovery under FAR 31.205-47 applies potentially to any federal contractor performing under: (a) cost-reimbursable contracts, (b) fixed-price contracts whenever (i) a cost analysis is performed or (ii) the determination or negotiation of costs is required and (c) construction, architectural, and engineering contracts, and research and development contracts, and contracts for supplies or services where the costs are negotiated with the government. See FAR 31.102-105. Such legal costs also may be recoverable when a contract is subject to a modification that based on cost negotiation.

This case should embolden companies defending qui tam lawsuits arising out of their federal contracts to pursue recovery of the majority of their legal fees if they are successful in obtaining dismissal of the relator's claims, in whole or in part.  To maximize their chance of recovery, contractors should: (1) analyze the terms of their contract or task order to determine the allowability of such costs, (2) carefully track and document all legal fees and costs spent defending the FCA claims, (3) timely submit a claim under the CDA to the contracting officer detailing the legal fees and costs spent successfully defending the claim(s), (4) if the FCA claim is settled, obtain a determination by the contracting officer that there was "very little likelihood that the claimant would have been successful on the merits" and (5) timely file an action in the U.S. Court of Federal Claims or the appropriate Board of Contract Appeal, if the contracting officer denies the claim for recovery of such legal costs.

Footnotes

1 Successful defense in the civil context means that there was no "finding of contractor liability" with respect to the FCA claims brought against the contractor. See FAR 31.205-47(b)(2). A contractor can also recover its legal costs if the matter is resolved by "consent or compromise," but only if it is determined by the contracting officer (in consultation with their legal advisor) that there was "very little likelihood that the claimant would have been successful on the merits." See FAR 31.205-47(c)(2)(ii).

2 In 2002, the Armed Services Board of Contract Appeals held that a contractor was entitled to recover 80 percent of its legal costs successfully defending FCA claims under FAR 31.205-47 even where the contractor was not successful in defeating all of the relator's claims. General Dynamics Corp., ASBCA No. 49372, 02-2 BCA 31,888 (June 10, 2002). The Board apportioned the recovery of legal costs allowing only legal fees related to the contractor's successful defense of claims that the Board found "did not stem from the same wrongdoing as the unsuccessful claims." Id.

3 FAR 31.205-47(g) requires contractors to segregate the covered legal costs and account for them separately until the FCA litigation or proceeding is concluded, unless otherwise agreed by the contracting officer.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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