Breakout Session # 1005 Aaron P. Silberman, Shareholder Rogers Joseph O’Donnell & Phillips

1. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

2. False Claims Laws: What Every Public Contract Manager Needs to Know Breakout Session # 1005 Aaron P. Silberman, Shareholder Rogers Joseph O’Donnell & Phillips Date April 27, 2004 Time 11:00 a.m. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

3. Federal Statute • False Claims Act • Contracts with Federal Gov’t • Contracts with Federal Funding NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

4. California Delaware Florida Hawaii Illinois Massachusetts Montana Nevada State Statutes NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

5. Oklahoma Tennessee Virginia Washington, D.C. State Statutes (cont.) • 7 other states with provisions limited to health care fraud NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

6. The Basics • Two types of suits • Brought directly by the Gov’t • Brought by whistleblowers (“qui tam” lawsuits) NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

7. An Escalating Business • Federal Whistleblower Lawsuits • 1988 – 60 lawsuits – $400,000 recovery • 2003 – 326 lawsuits – $1.48 billion recovery • Cases initiated by the Gov’t bring the totals much higher ($2.1 billion in 2003) NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

8. An Escalating Business • Activity under the more recent state statutes is beginning to take off, particularly in California • $29.5 million jury verdict against Tutor-Saliba last year – later increased to $69.3 million • Action by San Francisco against Tutor-Saliba on airport project • Aggressive use as weapon by various public entities including Cities of SF and LA, LA MTA & MWD NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

9. Bases for Liability • Knowingly submitting a false claim for payment • Making false records or statements to support a false claim • Conspiring to get the Gov’t to pay a false claim NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

10. Bases for Liability (cont.) • Making false records or statements to reduce or avoid an obligation to the Gov’t • In some states (not federal), being a beneficiary of an inadvertent submission of a false claim, later discovering falsity, and failing to disclose within a reasonable time NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

11. Elements of False Claim • Claim • Any request for payment of money or property whether the Gov’t pays or not • Includes any certification or representation necessary to obtain that payment • Need not be submitted directly to the Gov’t • So a subcontractor’s claim to the general passed on to the Gov’t is covered NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

12. Elements (cont.) • False • Objectively not factual, e.g., seeking payment for work not done • Violation of statute or regulation only if compliance is condition of payment • Majority federal rule: Gov’t knowledge does not preclude falsity (but some state laws are more favorable) NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

13. Elements (cont.) • Knowingly (“Scienter”) • No intent to defraud required • Rather, need only submit a claim • knowing it is false or • in deliberate disregard of falsity or • in reckless disregard of falsity NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

14. Elements (cont.) • Materiality • Majority rule: A false statement must have been likely to have affected the Gov’t’s willingness to pay in order to be a false claim • Gov’t knowledge of falsity may indicate that the matter was not material NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

15. Elements (cont.) • Damages • Majority rule: Gov’t need not have been damaged in order to establish a false claim • May be a false claim even if the falsity was to the Gov’t’s advantage NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

16. Consequences • Damages recoverable • 3 times actual damages • Measured by: • difference in value • cost of repair/replacement • contract price NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

17. Consequences (cont.) • Monetary Penalties • $5,000 - $10,000 per false claim (federal) • assessed even if no actual damages • Attorneys’ Fees and Costs of Qui Tam Relator • Debarment NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

18. Actions by the Gov’t Directly • Brought by Department of Justice under federal statute • Brought by AG or local agency under state statutes • Problem of contracting agency having ability to bring FCA cross-complaint NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

19. Qui Tam Actions • Allows citizen to sue in Gov’t’s name • Complaint filed under seal • All relevant information disclosed to the Gov’t which has 60 days to decide whether to intervene NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

20. Qui Tam Actions • Partial lifting of the seal frequently permitted • opportunity for defendant to present evidence • After intervention decision, seal lifted and complaint served • Recovery for relator from 15 to 30% (federal) NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

21. Qui Tam Actions • No Public Disclosure Permitted • Unless Original Source • Direct and independent knowledge • Voluntarily provided information to Gov’t before filing action • No majority rule re whether relator’s information must have been a catalyst for the public disclosure NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

22. Susceptible Areas on Public Projects • Bidding • Billing & Claims • Defective Work/Products • Subcontractor Payments • Wage Disputes • Small/Minority-Owned/Other Disadvantaged Business Certifications NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”