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Beware: Overreaching Claims Estimates Can Put You Under With Fca

Saturday, August 04, 2007 12:33 pm

Beware: Overreaching Claims Estimates Can Put You Under With Fca

Demanding the upper end of a claim's true value is a common bargaining tactic; it "anchors"future negotiations closer to the amount you're really looking for. But overstating claims is a dangerous game, especially when dealing with the feds. In our June issue, we provided you with an overview of the federal False Claims Act (FCA) (31 U.S.C. § 3729). This month, we will illustrate just how exposed you are when presenting questionable claims.

'It Was A Mistake' Plea May Not Fly For Estimates In Your Favor

The U.S. Court of Federal Claims recently found a contractor liable under FCA in Daewoo Eng'g & Constr. Co. v. United States, 73 Fed. Cl. 547 (2006). Daewoo, the contractor in that case, submitted an extremely low bid for a project, which it was later awarded. It soon became clear that Daewoo would not be able to complete the project for that amount, and Daewoo filed suit against the government, filing a certified claim for over $13 million in added costs it alleged the government caused. Though the court suspected that these claims were fraudulent, it stated that Daewoo's poor legal arguments and unreliable witnesses made it "difficult to locate the line between fraud and mere failure of proof."

However, Daewoo also filed for over $50 million in estimated future costs. A contractor may legitimately estimate work performed; such an estimate is not a false claim. However, in this case, the court found a number of problems with Daewoo's estimated future claims.

First, several of Daewoo's witnesses stated that the large claim of estimated future costs was "a means to get the Government's attention."The witnesses admitted that full payment on the claims was not expected; the certified claims were used as a "negotiating ploy."The court looked harshly upon this kind of "horse trading,"stating that those were the very practices that the legislature sought to stop by ad [...]

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