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Is This a Violation?


rmeman2k

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What happens when the Government accepts articles containing synthetic fabric or coated synthetic fabric, only to realize later that the item is noncompliant? As a general matter, under the standard “Inspection” clause once final acceptance has occurred, the Government has no remedy under the contract itself. Acceptance is only inconclusive if there are latent defects in the items, fraud, or gross mistakes amounting to fraud.

In March of 2013 a defense contractor self-reported to me, the contracting officer, that it delivered components which were not compliant with DFAR 252.225-7012 Preference for Certain Domestic Commodities clause in 14 of its contracts from 2005 to 2010. They also submitted a proposal to compensate the Government for the contractual non-conformance.

I found that the National Aeronautics and Space Administration Board of Contract Appeals has examined whether a failure to follow a domestic preference requirement could constitute a “gross mistake amounting to fraud.” In that case, three years after it accepted and paid for steel tubing, the Government realized that the tubing violated the Buy American Act provisions in the contract and sought either an equitable adjustment in the contract price or replacement tubing from the contractor. The board found that neither remedy was available, reasoning that the “Inspection” clause was not meant to cover mistakes on a “collateral matter” such as a Buy American Act violation. Thus, the Government’s acceptance was final, and the Government could not invoke its pre-acceptance remedies. The board further found that the Buy American Act clause itself provided no express remedy for a violation of its terms.

I believe the same reasoning logically should apply with equal force to the Berry Amendments synthetic fabric restrictions. The same kind of domestic preference policies are involved, and the “Preference for Certain Domestic Commodities “clause is equally silent on the subject of post acceptance remedies.

My legal advisor’s opinion is, “if the contractor self-reported than it must be a Berry violation” and we should accept the compensation.

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I'm surprised by the holding in the NASA BCA case. However, it works both ways. If the Inspection clause is inapplicable to conformance with the BAA clause, then the Government's acceptance of the item does not constitute an acknowledgement that an item is BAA-compliant.

If we assume that the contractor is not liable under a contract clause, it doesn't mean that they would not be liable for breach of contract (i.e., absent a dispute arising under the contract, the government may still have a dispute related to the contract). If the amount offered by the contractor is fair, I would follow your legal advisor's opinion.

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Thank you for the response, we are following the opinion of my legal advisor. I discovered the NASA case while researching the applicability of the Government response to the contractor’s proposal. The nonconforming items fell into two categories. Material in storage and material delivered to units in the field. We reached a negotiated settlement where the contractor would replace all of the nonconforming items in storage at no cost to the Government and a dollar value that represents a fair and reasonable value of the appropriated dollars spent on the unrecoverable nonconforming items. In that the “Preference for Certain Domestic Commodities “clause is silent on the subject of post acceptance remedies, the contractor has offered and the Government has agreed to accept supplies as consideration for the fair and reasonable value of the appropriated dollars spent on the unrecoverable nonconforming items. My legal advisor is not sure if this can be done but likes the idea. The NASA BCA case was the closest I found to addressing the issue of post acceptance remedies.

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Guest Vern Edwards

I'm going to venture out onto thin ice, thin because I don't know much about this and am just speculating.

It may be that the contractor is worried about being charged with a false claim. It may be concerned about qui tam litigation. It may be hoping that by self-reporting and offering a settlement it can avoid being charged under the civil or even criminal false claim statutes. I'm not sure that a settlement with the contracting officer would protect it. I hope the government lawyer who advised accepting the proposed settlement checked around before giving that advice.

See Holt and Klass, "Implied Certification Under the False Claim Act," Public Contract Law Journal (Fall 2011):

Among the core doctrines of U.S. contract law is that there are no punitive damages for a mere breach of contract. In fact, in many jurisdictions, a party can lie about or cover up a breach without risking punitive damages in fraud, under the rule that a breach cannot support an action for fraud. But government contracts are different. The False Claims Act (FCA) expressly prohibits government contractors from submitting “a false record or statement” material to a claim for payment. And under the judicially created doctrine of implied certification, a mere request for payment implicitly represents material compliance with the contract, as well as relevant statutes and regulations. As a result, a government contractor who requests payment without disclosing a known material breach can violate the FCA, triggering treble damages and fines of between $5,000 and $10,000 for each payment request.

See also United States v. Rule Industries, Inc., 878 F.2d 535 (1st Cir. 1989), which was discussed by Prof. Cibinic in "Buy American Act: Caught in the Tortuous Trap," 4 N&CR para. 8 (Jan. 1990):

What is the impact of the Rule decision? More uncertainty. If the matter is truly one for the jury to decide, another jury could come up with a different conclusion on the same facts. However, this may be little consolation for a bidder about to certify that its product is of domestic origin. Guess wrong on how a fact finder would decide the case and you wind up--like Rule Industries--on the losing end of a civil false statement claim or, worse yet, subject to criminal liability under the criminal False Claims Act, 18 U.S.C. 287. In either case, a losing decision would most likely result in suspension or debarment.
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Thank you for the additional input.

The Berry Amendment is an anomaly in the world of confusing statutes and regulations, very few cases discuss how it should be interpreted, and I can not find a case that pertains to its substance let alone the particular facts of this procurement.

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I believe Vern is more on track with this issue. Violation of the Berry Amendment may constitute fraud. Boeing was charged with fraud in such a case in 2004 for selling aircraft parts that contained Russian titanium.

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I believe Vern is more on track with this issue. Violation of the Berry Amendment may constitute fraud. Boeing was charged with fraud in such a case in 2004 for selling aircraft parts that contained Russian titanium.

Do you know how that situation worked out? Was there some kind of settlement? I don't recall a prosecution.

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Guest Vern Edwards
The Berry Amendment is an anomaly in the world of confusing statutes and regulations, very few cases discuss how it should be interpreted, and I can not find a case that pertains to its substance let alone the particular facts of this procurement.

The heart of the matter is truth telling, not the particular law the contractor was supposed to tell the truth about. The fact that you can't find a case that discusses the Berry Amendment is not important. The question is not whether a lawyer can find a case, but whether some lawyer can make one. The contractor's attorney might be worried about some of the ambitious hotshots at the DOJ. They are the ones who make and prosecute false claims cases.

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