A case full of money

A court decision on alleged kickbacks could cost firms millions

Five steps to stay under the radar

Joe Corini, president of Computer Marketing Associates Inc., said large contractors are most vulnerable to government audits and legal action under the False Claims Act and other regulations "because that's where the money is."

He suggests five ways contractors can reduce the risk of whistle-blower lawsuits, which can accumulate millions of dollars in court costs, legal fees and fines:

  • Pay careful attention to all oversight activities on Capitol Hill.
  • Establish government contracting controls at a high level in your company.
  • Conduct self-audits to ensure that your company is adhering to all government regulations.
  • Establish strict audit and fiscal controls that track your business practices.
  • Have oversight processes that will protect your company by mitigating the effects of audits and lawsuits.

Although three of the biggest names in government contracting face
possible steep fines for alleged improper billing, rebates and
kickbacks, industry experts do not expect the case against Sun
Microsystems Inc., Accenture Ltd. and Hewlett-Packard Co. to go to
trial or be settled out of court anytime soon.

Steve Charles, co-founder of business consultants immixGroup
Inc., of McLean, Va., expects the litigation to be long and drawn
out. “No one really knows how long it is going to take to
resolve,” he said.


It will be three years in September since Norman Rille and Neal
Roberts filed their whistle-blower suit based on the False Claims
Act in U.S. District Court in Little Rock, Ark. And it has been
almost two years since the Justice Department took over the case,
which brought the full force of the government to bear.


When asked about the timetable, Justice spokesman Charles Miller
said the attorneys involved say there is nothing new to report.


Defendants weighing a lengthy prosecutorial process and the
accompanying sky-high legal fees will often opt for an out-of-court
settlement, Charles said. That was what took place last year in a
claims settlement case against PeopleSoft Inc. that involved
charges going back to 1997, long before Oracle Corp. bought
PeopleSoft, he said.


The lawsuit alleged that PeopleSoft gave the General Services
Administration inaccurate pricing disclosures and incomplete
information about the sales of software licenses and related
maintenance services. “Because PeopleSoft did not give GSA
accurate pricing information, it negotiated higher prices for its
products and services than it would have obtained if GSA had known
the truth,” said Rod Rosenstein, U.S. attorney for the
District of Maryland, when the settlement was announced in October
2006.


Oracle paid $98.5 million rather than go to court. Justice said
it was the largest payment ever in a civil settlement under the
False Claims Act.


“I imagine the same will be true here,” Charles said
when asked about the possibility of an out-of-court resolution.


VIGOROUS DEFENSE


The core of the allegations is that HP, Accenture and Sun
solicited and/or made payments of money and items of value, known
as alliance benefits, to companies with which they had
relationships or agreements to work together.


“These alliance relationships and the resulting alliance
benefits amount to kickbacks and undisclosed conflict of interest
relationships,” Justice said.


For example, the Justice complaint charged that HP entered into
agreements with its alliance partners, including Accenture,
“wherein it pays kickback…including, but not limited
to, referral fees, influence(r) fees, systems integration
compensation fees, reseller fees, commissions, free or discounted
products and/or services, equity ownership, profit sharing and
other benefits.”


As a result, “millions of dollars of kickbacks were
sought, received, offered and paid between and among HP and its
Alliance Partners in violation of the False Claims Act and other
federal statutes and regulations,” the complaint states.


“We plan to vigorously defend this action and look forward
to demonstrating that HP has done nothing wrong,” said Emma
Wischhusen, public relations manager at HP. Accenture and Sun
officials have also has denied the charges.


Until the government intervened and filed its own complaint, the
whistle-blowers’ charges against the companies weren’t
presented clearly, said Stan Soya, a partner at the law firm of
Jackson Kelly in Washington. He called their complaint a blend of
“a variety of different statutory and regulatory
requirements.”


The Justice complaint improved on the original by specifying a
number of the charges, Soya said, but added that “it still
boils down to the same schemes” involving alleged illegal
payments, kickbacks and undisclosed discounts.


Soya, a former General Services Administration special agent and
an attorney in the Defense Department Inspector General’s
Office, said he believes the government now is in good shape to
move the case forward.


Nevertheless, he added, “it is going to be a complex case.
It’s going to take a lot [of time] to move toward
trial.”


In the meantime, “it’s probably causing some
uneasiness among government contractors,” Soya said.
Contractors should be examining whether their own contracting
activities meet government standards.


THOSE AT GREATEST RISK


“I think the biggest [contractors] are the ones that are
at most risk” because they sometimes fail to remember that
the rules of government and commercial sales are different, said
Joe Corini, president of Computer Marketing Associates Inc., a
government business development and contract services firm.


“This [case] should be a wake-up call,” he said.
“We have been living in an environment for the last four to
six years of lax oversight” by the contracting community and
the government. “The last three, four, five or six years,
people that have GSA schedules haven’t had to worry like they
used to,” he said, because budget cuts have forced GSA to cut
back on its audits.


He compared the decreasing of oversight and government audits to
motorists’ habits. “It’s like speeding
tickets,” Corini said. “If you never give out speeding
tickets on the Beltway or I-95, guess what? People are going to
start driving a little faster.”


“I think there are a lot of accidents waiting to happen
out there,” he said when asked about the possibility of the
government pursuing more False Claims Act cases in the future. He
said he believes lawmakers on Capitol Hill today see the need to
exert greater oversight than the previous Congress did.


“That’s not just my view. People in Congress feel
that way. [Rep. Henry] Waxman feels that way,” he said,
referring to the chairman of the Oversight and Government Reform
Committee.


A committee staff employee speaking on background said contract
oversight is a priority for Waxman and cited the hearing earlier
this year that examined Boeing Co.’s Secure Border Initiative
contract.


In addition to guarding against corporate abuses, False Claims
Act cases can be profitable for the government. Whistle-blowers
have helped the government recover about $18 billion since 1986,
when Congress passed legislation protecting them from
recriminations and dismissal by employers, according to the
nonprofit organization Judicial Watch. The government recovered
$3.1 billion in 2005, most of that from hospitals or other health
care providers that fraudulently overbilled, according to the
group.


Judicial Watch cited other high profile whistle-blower cases
such as Boeing’s improper contracts with DOD and NASA, and
the millions of dollars Halliburton Co. charged in fake war-risk
surcharges in Iraq reconstruction contracts. The company paid the
government $4 million to settle that case.


Associate Editor David Hubler can be reached at
dhubler@1105govinfo.com.



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