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Oles Morrison

When a false certification may not be “false” under the False Claims Act

By on March 26, 2013 | Posted in False Claims Act

Government contractors routinely provide certifications during the contracting process. For example, these certifications ask the contractor to verify that the cost or pricing data or claims submitted are true and honest. Submitting a false claim can create liability under the Federal False Claims Act (“FCA”). See 31 U.S.C. § 3729. Lawsuits against contractors for potential violations of the FCA may come directly from the Government or through qui tam suits. The central question in these cases is whether the contractor presented a false or fraudulent claim to the Government.

In some jurisdictions, not every failure to comply with a federal statute, regulation, or contract provision automatically creates liability. Courts may distinguish between “express” and “implied” certification theories of liability. Under an “express” certification theory, courts look to whether payment from the Government is contingent on an express requirement to certify compliance with an applicable statute or regulation. Absent an express requirement, a contractor may not be liable for a false certification. Under an “implied” certification theory, the very act of seeking payment implies that the contractor complied with applicable rules and regulations. If a contractor does not comply with applicable rules and regulations, the absence of an express requirement may not bar a court from holding a contractor liable.

A recent decision from a U.S. District Court in Texas provides an example of how courts deal with “express” and “implied” certification theories of liability. In U.S. ex rel. Long v. GSD & M Idea City LLC, Civil Action No. 3:11–cv–1154–O (Jan. 18, 2013), a contracts manager brought a qui tam suit against a contractor alleging that certified overhead costs and profit numbers provided to the Government during contract negotiations were false. The contractor argued that the contracts manager failed to show an FCA violation because the certifications at issue were not connected to a claim for payment. The court agreed, and held that for a certification to be “false” under the FCA, the certification must be a “prerequisite” or “condition” necessary to payment. The court dismissed the FCA claim because the contracts manager failed to demonstrate how any allegedly false certifications led to a false claim for payment.

The outcome in U.S. ex rel. Long may have been different in a jurisdiction applying an “implied” certification theory of liability. In such a jurisdiction, the mere fact that the contractor did not act in compliance with federal statutes, regulations, or contract provisions by providing allegedly false overhead costs and profit numbers during a contract negotiation may have been sufficient to impose liability. The distinction between false certifications made during contract negotiations and a claim for payment would not likely be dispositive. Liability attaches as a result of the underlying fraudulent activity, not to a claim for payment. This shows that depending on how a court treats a false certification, contractors can expect potentially inconsistent results.