Cooleygodward.biz

CooleyAlert!
News from our Government Contracts Group
The Significant Risk to SBIR Program
Participants Under the False Claims Act
based on incorrect statements of fact, and as the basis for his qui tam action. After nies, the U.S. Government’s Small Business a lengthy investigation, the United States Innovation Research (“SBIR”) Program is ment for performance of that contract. In Attorney intervened in the case. Signifi- an attractive source of R&D funding when certain circumstances, the contractor can cantly, the government did not argue that face civil penalties of not less than $5,500 LPT’s invoices were factually incorrect, or and not more than $11,000, for each invoice. panies fail to appreciate the different and In addition to these baseline penalties, the than was due under the terms of LPT’s SBIR significant risks associated with applying for contractor can be liable for “three times the contracts. Instead, the government argued public funding through the SBIR program. A that the invoices were “tainted because they recent case in the U.S. District Court for the [arose] from a contract procured by false or Southern District of Texas, in which a small The “qui tam” provision of the FCA allows technology company was found civilly liable private individuals not injured by the defen- On the parties’ cross-motions for summary under the False Claims Act for statements dant’s conduct to sue the defendant on made in its SBIR proposals, illustrates the behalf of the United States. As an incentive defendants, concluding that certain state- potentially severe consequences of unfamil- to sue under the qui tam provision, the FCA ments in LPT’s SBIR proposals were untrue, iarity with the risks unique to doing business allows “relators” (the private “plaintiffs” in that LPT had knowledge of the falsity of the with Uncle Sam. See United States ex rel. FCA suits) to receive up to 30 percent of statements (or at least reckless disregard for Longhi v. Lithium Power Technologies, Inc., the proceeds of the action or settlement of their truth), and that the statements were H-02-4329, Sept. 27, 2007; Jan. 3, 2008.
material to the agency’s decision to award The False Claims Act
The Longhi Case
The False Claims Act (“FCA”), in relevant The defendants in the Longhi case were part, imposes liability on “any person” who: Lithium Power Technologies (“LPT”), a Gregory A. Smith. . . . . . . . . . . . . 703/456-8163 1. knowingly presents, or causes to be pre- sented, to an officer or employee of the Kevin P. Mullen . . . . . . . . . . . . . . .202/842-7882 formed LPT as a successor to a series of of the Armed Forces of the United States David E. Fletcher. . . . . . . . . . . . . . 202/842-7813 with the intention of developing advanced lithium batteries and capacitors. From 1998 Christopher J. Kimball. . . . . . . . .202/842-7892 to 2004, LPT secured Phase I and Phase II 2. knowingly makes, uses, or causes to be made or used, a false record or statement more than $5.8 million. Of this amount, the This information is a general description of the law; it is not intended to to get a false or fraudulent claim paid or provide specific legal advice nor is it intended to create an attorney-client relationship with Cooley Godward Kronish LLP. Before taking any action $1.66 million as of the time of suit.
on this information you should seek professional counsel.
Copyright 2008 Cooley Godward Kronish LLP, 3000 El Camino Real, The relator, Albert Longhi, was a former Palo Alto, CA 94306. Permission is granted to make and redistribute, without charge, copies of this entire document provided that such copies are complete and unaltered and identify Cooley Godward Kronish LLP as induces the government to award a contract the author. All other rights reserved.
the contracts. In so concluding, the Court particular invoice, the Court assessed only focused on “whether the statements made uct for which it contracted,” but on “the one forfeiture for each of the four contracts. in the proposals were literally true at the However, because LPT’s fraud “was sys- tematic and knowing,” the Court imposed the maximum for each forfeiture. With The Court cited the following examples of untrue statements in LPT’s proposals that amount it paid out under the four contracts facilities in the local area, LPT claimed ($1,657,455). Multiplying that figure by three, the Court imposed total damages in had “cooperative arrangements with the business history and corporate status in the civil penalties, LPT’s liability exceeded $5 million, plus post judgment interest of laboratories and scientific equipment.” fied itself as a corporation and ascribed to itself the experience of its predeces- that LPT had no special “arrangements” In conclusion, the Longhi case illustrates with those facilities, but had access to ferences between private sources of R&D … batteries,” and that “[o]ver the years the public. The Court found that LPT’s statements in this regard “were factually SBIR applicants misstate or embellish facts in an effort to “puff up” their qualifications can far exceed what might be expected in by the Solicitation: In its proposals for the commercial world. Awareness of these after submitting the proposal), the Court potential consequences and careful, precise drafting of SBIR proposals can help a com- “literally false and made with the requi- certain “related work” it had performed pany avoid the scrutiny of the Department for the Army, contrary to the instructions of Justice, and the second-guessing of the in the solicitations. LPT argued that the company’s statements and motives by the solicitation instructions were vague and describing its facilities and the equipment where the Air Force “already knew about the Army proposal.” The Court rejected square feet of new laboratory and office sion—i.e., by failing to disclose prior teries and capacitors.” On the date the as required by the SBIR solicitation.
On these bases, the Court concluded that facilities were not yet complete. The gov- each of the invoices submitted during per- formance of LPT’s four SBIR contracts was the proposal to demonstrate falsity, not- a false claim for which the defendants were ing that LPT claimed that it “occupies” the space, and “has” a dry-room. Even though LPT argued that the facilities in In a subsequent opinion, the Court deter- damages. Because LPT’s liability was pred- SBIR contracts and not the falseness of any

Source: http://www.cooleygodward.biz/files/ALERT_SBIR_FalseClaims.pdf