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January 23, 2015 Contractor Fraud

Record Storage Company Settles False Claims Allegations Regarding Their Government Contract

When a private company enters into a contract with the federal government, the terms contained within the agreement must be adhered to in order to avoid exposure to False Claims Act liability. One foundational requirement is that, during the negotiation phase of the contract, companies must be truthful, forthcoming, and candid in their remarks and statements – particularly when prompted for information by the federal government. In the event a company is not forthcoming or makes misrepresentations during the negotiation phase – resulting in an award of the contract – the company could face subsequent liability for these misrepresentations.

In addition, under nearly all government contracts, providers are required to offer the government the lowest possible price for services, including any and all discounts offered to the regular consumer or business client. Failure to adhere to this could result in False Claims Act liability for the difference. In many contract fraud cases, companies skirt around the finer details of their sales practices in an attempt to reduce the likelihood that the government will notice charges for services that are above that which is charged to the general public.

In a recent settlement between the federal government and Iron Mountain Information Management, the government has alleged that the company did not engage in truthful and honest negotiation practices when it negotiated the contract with the government for the storage of records and documents. As a result, the company has agreed to pay $44.5 million in order to avoid the costs and time commitment of a trial – but has not admitted any liability in the matter.

Details of the allegations against Iron Mountain

Based in Boston, Iron Mountain is in the business of storing records and documents for entities lacking the physical space to do so themselves. According to the allegations raised by a former employee whistleblower, Iron Mountain made several misrepresentations during the negotiation phase, as well as engaged in storage practices that did not meet the standards set forth in the agreement.

More specifically, the whistleblower alleged that during the negotiation stage, Iron Mountain failed to fully reveal and explain its commercial sales practices – and likely due to its intent to subsequently offer the government a higher price for services than it should have. Under federal regulations, a potential government contractor must reveal any and all sales practices in which it engages with respect to other customers purchasing similar services. When working with the government, the contractor must promise to offer the government a price that is equal to or better than prices offered to other customers. In this case, Iron Mountain certified that it had submitted accurate and complete data as to its sales agreements with other customers, when in fact the data was skewed and did not represent the actual values of the contracts between Iron Mountain and its other customers. Relying on this data, the government awarded Iron Mountain the contract, which was based wholly on falsified or exaggerated data. For example, Iron Mountain offered the government a storage rate of $0.137 cents per cubic foot of storage, whereas its customer J.P. Morgan Chase was paying just $0.10.

In addition, the whistleblower alleged that Iron Mountain did not adhere to specific storage as required in the contract. More specifically, the government maintains strict National Archives and Records Administration requirements applicable to the maintenance and handling of its documents, including enhanced protections from fire, environmental influence, and breaches of security. Allegedly, Iron Mountain agreed to adhere to these heightened standards but did not actually abide by the rules – despite invoicing the government for this particular type of safer storage practice. Allegedly, Iron Mountain charged the government an increased rate of $0.27 per cubic foot of NARA-compliant storage, when the majority of documents were stored in a regular, non-compliant area.

The whistleblower in the case, a former employee of Iron Mountain, will receive $8,100,000 as a reward for his willingness to come forward.

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