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Paying All You Can To Subs Doesn't Relieve Duty To Timely And Properly Dole Out Govt.'s Money

Sunday, October 04, 2009 06:15 pm

 

Paying All You Can To Subs Doesn't Relieve Duty To Timely And Properly Dole Out Govt.'s Money

You must match the government's payments to you for specific work to the payments you make to subs and suppliers for that work. Failure to do so could land you in hot water for fraud even if you don't withhold any project money.

The Department of State (DOS) hired Kullman Industries, Inc. (Kullman) to design and build a U.S. Embassy in Dushanbe, Tajikistan for approximately $63 million. During the project, Kullman suffered cash flow difficulties -- allegedly due to non-payment by DOS -- and fell behind in payments to its supplier Belcor, Inc. (Belcor). FAR 52.232-27, which the contract incorporated, obliged Kullman to pay its subs and suppliers and to notify DOS if it withheld payments for "services provided." DOS, which contended that it properly paid Kullman, terminated Kullman's contract for default and, in court, asserted that the contractor committed fraud by falsely representing that it had paid Belcor when it had not.

The government alleged that Kullman falsely certified in its monthly invoices that it had paid its subs and suppliers in order to receive full payment from DOS. Specifically, it pointed to invoice line item STF 1074 ("Fab Fuel tanks, piping & ship to port") for which DOS had paid Kullman $435,000. The government claimed that this was the only item that pertained to the materials Belcor supplied, and therefore Kullman should have paid Belcor in full from the payment it received. The government claimed that the fact that Kullman did not pay Belcor in full demonstrated the contractor knowingly submitted false invoices and intended to deceive the [...]

 
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