Knowingly Underbidding For Government Contract May Lead To False Claims Liability

Contractors usually assume that the statutory prohibition on submitting "false claims" refers to inflated invoices, phony change order costs, and the like. However the courts are giving the relevant statutes a broader meaning which public works contractors should take into account. For example, the United States Ninth Circuit Court of Appeals recently ruled that a bidder for a government contract that is found to have knowingly underbid the contract may have liability under the federal False Claims Act ("FCA"). In Hooper v. Lockheed Martin Corporation, 688 F.3d 1037 (9th Cir. 2012), Lockheed was the successful bidder for a contract with the Air Force to automate and modernize software and hardware used to support U.S. space launch operations. The contract was structured as a reimbursable cost plus "award fee" contract, where the contractor would be paid its costs of performing the work, plus "award fees" given at periodic intervals based on overall performance,