April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 1

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 2 Breakout Session # 1005 Aaron P. Silberman, Shareholder Rogers Joseph O’Donnell & Phillips DateApril 27, 2004 Time11:00 a.m. False Claims Laws: What Every Public Contract Manager Needs to Know

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 3 Federal Statute False Claims Act –Contracts with Federal Gov’t –Contracts with Federal Funding

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 4 State Statutes California Delaware Florida Hawaii Illinois Massachusetts Montana Nevada

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 5 State Statutes (cont.) Oklahoma Tennessee Virginia Washington, D.C. 7 other states with provisions limited to health care fraud

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 6 The Basics Two types of suits –Brought directly by the Gov’t –Brought by whistleblowers (“qui tam” lawsuits)

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 7 An Escalating Business Federal Whistleblower Lawsuits –1988 – 60 lawsuits – $400,000 recovery –2003 – 326 lawsuits – $1.48 billion recovery Cases initiated by the Gov’t bring the totals much higher ($2.1 billion in 2003)

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 8 An Escalating Business Activity under the more recent state statutes is beginning to take off, particularly in California –$29.5 million jury verdict against Tutor-Saliba last year – later increased to $69.3 million –Action by San Francisco against Tutor-Saliba on airport project –Aggressive use as weapon by various public entities including Cities of SF and LA, LA MTA & MWD

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 9 Bases for Liability Knowingly submitting a false claim for payment Making false records or statements to support a false claim Conspiring to get the Gov’t to pay a false claim

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 10 Bases for Liability (cont.) Making false records or statements to reduce or avoid an obligation to the Gov’t In some states (not federal), being a beneficiary of an inadvertent submission of a false claim, later discovering falsity, and failing to disclose within a reasonable time

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 11 Elements of False Claim Claim –Any request for payment of money or property whether the Gov’t pays or not –Includes any certification or representation necessary to obtain that payment –Need not be submitted directly to the Gov’t So a subcontractor’s claim to the general passed on to the Gov’t is covered

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 12 Elements (cont.) False –Objectively not factual, e.g., seeking payment for work not done –Violation of statute or regulation only if compliance is condition of payment –Majority federal rule: Gov’t knowledge does not preclude falsity (but some state laws are more favorable)

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 13 Elements (cont.) Knowingly (“Scienter”) –No intent to defraud required –Rather, need only submit a claim knowing it is false or in deliberate disregard of falsity or in reckless disregard of falsity

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 14 Elements (cont.) Materiality –Majority rule: A false statement must have been likely to have affected the Gov’t’s willingness to pay in order to be a false claim –Gov’t knowledge of falsity may indicate that the matter was not material

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 15 Elements (cont.) Damages –Majority rule: Gov’t need not have been damaged in order to establish a false claim –May be a false claim even if the falsity was to the Gov’t’s advantage

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 16 Consequences Damages recoverable –3 times actual damages –Measured by: difference in value cost of repair/replacement contract price

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 17 Consequences (cont.) Monetary Penalties –$5,000 - $10,000 per false claim (federal) –assessed even if no actual damages Attorneys’ Fees and Costs of Qui Tam Relator Debarment

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 18 Actions by the Gov’t Directly Brought by Department of Justice under federal statute Brought by AG or local agency under state statutes –Problem of contracting agency having ability to bring FCA cross-complaint

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 19 Qui Tam Actions Allows citizen to sue in Gov’t’s name Complaint filed under seal All relevant information disclosed to the Gov’t which has 60 days to decide whether to intervene

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 20 Qui Tam Actions Partial lifting of the seal frequently permitted –opportunity for defendant to present evidence After intervention decision, seal lifted and complaint served Recovery for relator from 15 to 30% (federal)

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 21 Qui Tam Actions No Public Disclosure Permitted Unless Original Source –Direct and independent knowledge –Voluntarily provided information to Gov’t before filing action –No majority rule re whether relator’s information must have been a catalyst for the public disclosure

April 26–28, 2004 Renaissance Orlando Resort at Seaworld Orlando, FL NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World” 22 Susceptible Areas on Public Projects Bidding Billing & Claims Defective Work/Products Subcontractor Payments Wage Disputes Small/Minority-Owned/Other Disadvantaged Business Certifications