Recent FCA Decision Has Important Implications For Contractor Disclosures To The Government

• Jurisdiction: United States
• Date: 09 April 2014

A recent decision from the U.S. District Court for the Eastern District of Virginia has important implications for government contractors that make mandatory disclosures of improper conduct to the U.S. Government.1 In U.S. ex rel. Saunders v. Unisys Corporation, No. 1:12-cv-00379, the district court held that disclosures by Unisys Corp. to the Department of Defense (DOD) Office of Inspector General (OIG) regarding Unisys's "unacceptable" billing did not qualify as a public disclosure under the False Claims Act (FCA), 31 U.S.C. § 3730(e). Under the district court's reasoning, the public disclosure defense is not available to contractors making disclosures to the OIG, unless the disclosures are also made available to the general public. Moreover, the contractor cannot merely disclose information related to the fraud, but must publicly disclose, at a minimum, the facts from which fraud can be reasonably inferred.

UNISYS'S ALLEGED CONDUCT2

In 2007, Unisys began providing information technology services to the U.S. Army under a task order (TO 122) that contained both time and materials (T&M) and firm fixed price (FFP) contract line items. After a few months of billing, Unisys found it was at risk of going over the Army's T&M budget. The Army converted some T&M tasks into FFP tasks, and the company soon realized the new billing practices would render the task order unprofitable. In February 2008, Unisys allegedly sought to restore TO 122 to profitability by implementing the "red/blue" plan, which ensured that 50% of all tasks were billed to T&M and 50% would be billed to FFP regardless of the Army's actual billing designations. It is alleged that the "red/blue" plan resulted in at least $13,474,000 in overcharges to the U.S. Army over the next two and a half years.

Sometime later, Unisys received an internal allegation of unethical billing involving TO 122. In 2010, Unisys conducted an internal investigation and asked relator Michael Saunders, a partner in Unisys's Federal Systems Division, to present the report to the OIG.3 The report described Unisys's billing practices as "unacceptable," but it did not admit that the practices led to actual overbilling.

Shortly after Unisys filed the final report with the OIG, Saunders learned of several facts that he claims Unisys had concealed from the report and that form the basis of his lawsuit. For example, the alleged conduct that the report failed to mention included: that Unisys's senior managers...