Federal Appeals Court Says Estimates In Government Bids Can Be Actionable As False Claims

The Ninth Circuit issued an opinion last week in which it held that knowingly making "false estimates" in connection with a bid for a government contract may be actionable under the False Claims Act ("FCA"), 31 U.S.C. §§3729 et seq. United States ex rel. Hooper v. Lockheed Martin Corp., No. 11-55278 (9th Cir. Aug. 2, 2012).

The FCA allows private citizen "relators" to file suit on behalf of the government to recover damages from persons who file false claims for government funds. Nyle Hooper worked at Lockheed Martin as the Senior Project Engineer assigned to the U.S. Air Force Range Standardization and Automation ("RSA") IIA program, which managed the hardware and software supporting launch operations at Vandenberg Air Force Base and Cape Kennedy. He alleged that he was terminated by Lockheed Martin because he was investigating fraudulent activity surrounding Lockheed's RSA IIA bid. In particular, Hooper charged that Lockheed violated the FCA by, among other things, purposefully underbidding the contract.

The RSA IIA contract is a cost plus award fee contract, under which the contractor is reimbursed for costs incurred, and paid periodic award fees based on performance. Lockheed bid the effort for $432.7 million, but has since been paid over $900 million for its work.

The contract was awarded on a best value basis, with cost as the second most important factor. In response to Lockheed's motion for summary judgment, Hooper put forward evidence that Lockheed sought to manipulate its cost submission by artificially deflating expected costs in an effort to win the RSA IIA contract. The district court found the evidence insufficient to survive summary judgment. On appeal, the Ninth Circuit reversed on this issue.

FALSE ESTIMATES MAY CREATE LIABILITY UNDER THE FCA

To establish a cause of action under the FCA, a plaintiff must demonstrate the presence of: "(1) a false or fraudulent claim (2) that was material to the decision-making process (3) which defendant presented, or caused to be presented, to the United States for payment or approval (4) with knowledge that the claim was false or fraudulent." On appeal, Lockheed argued that estimates are a type of opinion or prediction and thus cannot be a "false statement" within the meaning of the FCA. The United States filed an amicus brief on this issue alone, seeking a finding that a false estimate and/or fraudulently low bid may be actionable under the FCA.

Agreeing with the government, the Ninth...