June 17, 2016 - False Claims Act, Small Business

Government Contracts Takes Center Stage On Supreme Court Docket

LitigationIn what was a banner day for government contracts on First Street yesterday, the Supreme Court issued two government contracts related decisions. First, in Kingdomware Technologies, Inc. v. United States, a case in which some of the firm’s attorneys participated, the Supreme Court overturned the Federal Circuit and Court of Federal Claims (and agreed with the Government Accountability Office) in concluding that the Veterans Act required the Department of Veterans Affairs to set aside procurements for Veteran-Owned Small Businesses as long as the Rule of Two is satisfied. That is, as long as there are at least two Veteran-Owned Small Businesses capable of performing the work that the VA is acquiring at a reasonable price, the VA must set-aside essentially all of its procurements. In addition to leading to a likely increase in veteran-owned business awards, this may have significant repercussions outside of the VA context, as it may open the door for applying some small business set aside rules to Federal Supply Schedule orders.  Next, in Universal Health Services, Inc. v. United States ex rel. Escobar, the Supreme Court recognized the implied false certification theory as a basis for False Claims Act liability.  The result could have a deleterious effect on government contractors as it could open the door to more False Claims Act allegations that earlier may have been considered mere contract compliance issues.  Although the Court’s decision notes that any alleged violation must be material to the government’s payment decision to be actionable – and warns that this materiality standard is demanding – the question is likely one that will be fact-specific, resulting in many cases that might have previously been dismissed under Rule 12(b)(6) now being allowed to continue through what may be drawn-out and expensive discovery.

The team at MoFo is continuing to analyze these recent decisions and will provide further analysis shortly.