The False Claims Act was encacted during the Civil War era and has been used countless times over the years to combat fraud in military and defense contracts. Defense contractors are required to only submit invoices for payment or reimbursement for services actually rendered. If a contractor inflates, exaggerates, or creates billable work, it could face serious penalties under the FCA.
In a recent case, a California District Court decided not to hold technology company Honeywell responsible under the FCA for allegations of fraud against the government. More specifically, the lawsuit against Honeywell alleged that it fraudulently charged certain license fees to the U.S. government pursuant to its contract for software and GPS technology. Honeywell’s contract with the government required it to provide navigation software to U.S. military aircraft and sub-contracted much of the work to a company known as General Atomics, wherein the whistleblower was employed.
Whistleblower’s Claims Draw Distinction From Court
Under its contract with the government, Honeywell was to design and implement software for use in navigating several aircraft used by the military. As a result, it designed and implemented “core EGI” software and subsequently billed the government over $250 million in software license fees. The whistleblower, an administrator for General Atomics, felt it was inappropriate to charge the government for license fees under the assertion that portions of the core EGI software were actually developed by the government itself – complemented by private development of the program by Honeywell. In sum, the relator felt that the government was paying license fees for a product it helped design.
After consideration by the District Court, it opted to dismiss the relator’s claims against Honeywell. It relied upon the essential elements of an FCA claim, which include a showing that the defendant “knowingly” or “recklessly” defrauded the government. In other words, a defendant cannot face liability under the FCA unless it set out to purposely defraud the government or, at the very least, acted so ignorantly with regard to its government contract that it should have known fraud was taking place.
In this case, the Court found that the relator had not established this element and could not sustain a cause of action under the FCA. After a review of the evidence, the Court determined that Honeywell acknowledged and advised the government that its license fees applied to the portions of the core EGI software it developed privately and that these portions were divisible and therefore subject to the license fees. Honeywell’s conduct under the contract, according to the Court, did not amount to purposeful or reckless fraud as required by the FCA.
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