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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