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Below-cost Bid And Subsequent Requests Not False Claims Bids; Changes; Claims Administration

Saturday, April 03, 2004 12:34 pm


A federal district court has ruled that a contractor's submission of an intentionally underpriced bid, with the expectation of obtaining change orders to increase the contract price, could not - as a matter of law - violate the civil False Claims Act.

The Army Corps of Engineers issued an invitation for bids for construction of a dam in San Bernardino County, California. The work consisted primarily of the excavation, processing, transportation and placement of materials. The bid schedule called for unit prices on a number of line items of estimated quantities. Bids were to be evaluated on the basis of the total of the extended line items, but contract payment would be based upon the actual quantities of work performed.

CBPO of America and its affiliate Odebrecht Contractors of California, Inc. (OCC) submitted the low bid. The bid price of $167,777,000 was $30 million below the second low bid and $35 million below the government's cost estimate. The second low bidder protested that OCC's bid was unreasonably low. Contract award was delayed pending resolution of the bid protest. Despite escalating costs, OCC agreed to extend the bid acceptance period and reaffirmed the accuracy of its bid.

The Corps of Engineers awarded the contract to OCC almost eight months after bid opening. Over the course of the project, OCC requested and received equitable price adjustments in excess of $100 million, but still incurred a loss on the contract. An employee of a scheduling consulting firm, retained as a subcontractor by the Corps [...]

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