The False Claims Act: A Case Study on PowerSecure

Certified Cost or Pricing Data, Sole Source, and the DoJ: What Do These Three Things Have in Common? The short answer is the False Claims Act (FCA).

Federal contractors have been accused of defrauding the United States Government since the American Civil War. As a result, the FCA, 31 U.S.C. §§ 37293733, was enacted in 1863. While the FCA has been amended several times since originally enacted, the main element of the FCA,that anyone who knowingly submits a false claim to the USG is liable for damages, includingpenalties, remains unchanged.

False Claims Act cases are investigated and litigated by the Commercial Litigation Branch, Fraud Section, of the United States Department of Justice (“DOJ”). Since the enactment of the FCA, the DOJ has recovered more than $70 billion in False Claims Act settlements and judgments. In addition to other areas, the Fraud Section handles cases that involve Defense Contracting Fraud and Procurement Fraud. Ensuring procurement integrity by federal contractors who provide support to the USG is of utmost importance. While there are statutes and regulations in effect that govern federal contractors who do business with the USG, much like there are speed limit signs posting the maximum speed at which a vehicle can travel, federal contractors do not, knowingly or unknowingly, always adhere and follow those statutes and regulations. The DoJ’s Fraud Section uses the FCA as a tool to fight instances of fraud being perpetrated against the USG.

The False Claims Act and PowerSecure

Most recently, PowerSecure, Inc. (“PowerSecure”), located in North Carolina, entered into a Settlement Agreement with the DoJ to resolve allegations that it violated the FCA. The USG alleged PowerSecure failed to provide certified cost or pricing data when negotiating its contract with the U.S Army Corps of Engineers (USACE) for the repair and restoration of Puerto Rico’s power grid following the destruction caused by Hurricane Maria which made landfall on September 20, 2017. Less than thirty (30) days after Hurricane Maria hit Puerto Rico, PowerSecure was awarded Contract W912EP18C0003. This was a single source solicitation pursuant to FAR 6.3022, Unusual and compelling urgency. As of the May 4, 2018 Modification (P00011), the contract was valued at $522,955,011.741. The period of performance ended May 18, 2018. On March 22, 2018, DoD’s Inspector General (DoDIG) released a Memorandum stating they planned to begin the audit of U.S. Army Corps of Engineers Oversight of Contracts for Repairand Restoration of Electric Power Grid in Puerto Rico (Project No. D2018D000AU0128.000) to determine whether the USACE “properly monitored contractor performance, and appropriately reviewed and paid invoices…”. On September 30, 2019, the DoDIG issued an 86page report(DODIG2019128) of its audit findings.

As a result of the cooperation and coordinated efforts between the DoD OIG, DHS OIG, DCAA, DoJ, and the U.S. Attorney’s Office for the District of Puerto Rico, PowerSecure has agreed to pay $8.4 million, plus interest. Restitution in the amount of $6 million is to resolve the allegations that it failed to disclose certified cost or pricing data regarding its proposed rates as required under FAR 52.21521. The U.S. Government contends this failure caused the USACE to pay “$3.6 million in inflated rates for labor and equipment” and “$2.4 million for basecamp services”.

    Total fraud and false claims exceeded $5.6B in FY2021.

    The DoJ has increased settlements and judgments involving fraud and false claims against the government. In FY2021, the DoJ pursued procurement fraud cases against Navistar Defense LLC, Workrite Ergonomics LLC, United Airlines, Cognosante LLC, AAR Corp (AAR Airlift Group Inc.), Level 3 Communications LLC and Schneider Electric Buildings Americas Inc. The total of all fraud and false claims exceeded $5.6 billion in FY2021.

      The Takeaway

       The key take away is if you are subject to Truthful Cost or Pricing Act (TCPD), disclose your cost or pricing data unless you’d rather be looking over your shoulder wondering when the DoJ might come knocking on your door. The requirement to disclose applies not only to Prime contractors, but flows down to subcontractors.

      If you’re new to this process, SpendLogic Consultants can be your trusted advisor.  We’ve worked with hundreds of companies from both sides of the table.  Whether you’re creating Certified Cost or Pricing Data to submit with a proposal, or analyzing something from a subcontractor, we can help!  Reach out to us today!

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