Apparent disconnect on contractor lawsuit is business as usual

It is a situation that has raised some eyebrows: the Coast Guard commandant last weekend honored a contractor accused of fraud by the Justice Department.

But several experts say the apparent disconnect between agencies is fairly common and reflects the complex realities of federal contracting. It is not unusual for an agency to continue work with a contractor who is being investigated or sued by another arm of the government, at least until the case is resolved, the experts said.

“It actually is business as usual and does happen on a fairly regular basis,” said Gary Therkildsen, federal fiscal policy analyst for OMB Watch watchdog group.

“It isn't unheard of for Justice, Congress, or the public to have a negative view of contractor operations and performance while the government continues doing business with that entity,” agreed Scott Amey, general counsel for the Project on Government Oversight, a watchdog group.

On March 2, Coast Guard Commandant Admiral Robert Papp praised contractor Bollinger Shipyards at a ceremony attended by about 500 people in Lockport, La. The event was held by the Coast Guard to accept delivery of the latest cutter built by Bollinger.

Meanwhile, the Justice Department in August 2011 went to court to accuse Bollinger of making false statements to the Coast Guard on a related contract. The DOJ’s unresolved False Claims Act lawsuit against Bollinger seeks unspecified damages expected to be in the millions of dollars from the company.

The U.S. attorney general claimed Bollinger made false statements about the eight patrol boats it was lengthening for the Coast Guard. The completed boats were rejected as unsound.

Nonetheless, the Coast Guard has continued to award contracts to Bollinger. The agency signed a $180 million contract with Bollinger for the production of four more fast-response cutters in September 2011.

“When DOJ brings a suit like that, it is kind of a big deal, but contractors are accused, and in process of working out claims, all the time,” Therkildsen said. Because of the “innocent until proven guilty” presumption, work generally continues until, and unless, the contractor is suspended or debarred.

The competitiveness of the market for the particular service or product is a major factor in how the situations are handled, he added.

“With a lot of these large contractors, they are ‘too big to debar,’” he said. “The government ends up relying on their services and no one else can provide the services that they can. The government is caught in a Catch 22 situation where, sure, they’d like to go after the contractor, but they cannot be too harsh because in the end they end up needing their services.”

“The fact that there is a False Claims Act case does not mean the company is guilty. In contracting, there is still a principle of ‘innocent until proven guilty,’” said Alan Chvotkin, executive vice president of the Professional Services Council.

Furthermore, for specialty work in fields with few alternatives, federal agencies often continue to work with accused contractors, Chvotkin added.

In Bollinger’s case, “I suspect there is not a lot of competition, so it would not be unusual to continue to do business unless they are suspended or debarred for future work,” Chvotkin added.

Furthermore, since False Claims Act cases often take several years to resolve, activities can continue as normal for quite a while under the cloud of an accusation, he said. For example, the ceremony that Papp attended to accept delivery of the cutter that Bollinger built is a standard ceremony performed upon delivery of such vessels, and it would be typical to hold such a milestone ceremony.

The DOJ typically gets involved in only about a dozen large False Claims Act cases a year, Therkildsen said. Even so, work continues for the contractor until the case is resolved.

Watching a federal official honor a company accused of fraud can be off-putting. “When you see these things, it is jarring,” Therkildsen said. “As far as the question of ‘When is it going over the line?’ It’s subjective.”

And other factors may be in play, said Amey, of the project on government oversight group, which maintains an online database of federal contractor misconduct.

For example, the agency may be satisfied with previous work by the contractor, or may not want to jeopardize the timing of a program by starting over, Amey said. Also, a key lawmaker may wield influence over agency funding while also striving to support an important employer in a particular district, he suggested.

Despite all those factors, in the best case scenario the government agencies should consider misconduct allegations when awarding contracts, said Amey.

“When it comes to contract-related fraud or misrepresentations, the government should think twice about providing any new taxpayer dollars to those abusing the public trust,” Amey said.





About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

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Reader comments

Wed, Mar 7, 2012 Michael DeKort

There should be some middle ground in a time of war post 9/11 where there can be debarring if the DoJ charges involves safety or security issues. Handle it like a Grand Jury and let t=hem decide if there is enough evidence to temporarily debar. Then if the contractor wins at trial let them sue for damages. Additionally past performance is a factor in bid determinations. Past performance can be performance seen or measured by the government that does not involve criminal or civil issues. A bad product, over billing, delivering late etc are all reasons to ding performance without involving criminal or civil matters. All this really boils down to is courage.

Wed, Mar 7, 2012 Michael DeKort

I am concerned that I may not have acknowledged, on these issues, the important contributions of Commander Pierce and Pam Bible? Both provided sworn testimony regarding the worthless, decommissioned 8 Patrol Boats all of which operated before ICGS and Northrop Grumman got their greedy paws on them. Pam was the official Contract Officer who formally rejected all of the converted 123s and demanded the return of $96.1 million as damages. Commander Pierce was the official 30(b)(6) witness who testified, officially, for CG, itself, and who also provided us a sworn Declaration spelling out the material misrepresentations and failures confirmed by the official, written USCG investigation. Commander Pierce was unequivocal that the contractors withheld and misrepresented critical information that resulted in hull failure, and that kept the CG from cancelling the 123 program at a much earlier point in time, saving significant money. They totally rejected the poor work and misleading conduct. Yet, the Commandant effectively rejected or repudiated the very clear sworn testimony of trusted CG personnel who were adamant about the contractors total failures in the 123 modification program. The Commandant seems to have no compassion for the taxpayers, the safety of those who served on the 123s or trust in his loyal staff whose motivations have never been doubted by anyone on the Deepwater program. We have it right, and the Department of Justice has it right. The contractors misled the USCG and destroyed 8 operating patrol boats. The Commandant is either (a) grossly uninformed (isn’t he aware of the content developed during the April 2007 Transportation and Infrastructure Committee Investigative hearing in Congress), or (2) he is informed and he is trying to sink the Taxpayers before the CG has to scuttle the 8 useless 123’ Patrol Boats which the contractors destroyed. The Deepwater work was expressly guaranteed, unconditionally, by ICGS and its partners, so why doesn’t someone shake up the top of the USCG and make them do the job they were appointed to do; just make the guarantee demand like the rest of us would if our tire blew out before the warranty period. It is so simple and the taxpayers are entitled to the benefit of those guarantees. How much money has to be at stake before it matters to this Commandant? Lastly the scope of the fraud needs to be considered. Bollinger is accused of purposefully designing patrol boats with weak hulls to save money on steel. They falsified the design and design calculations to state the designs were sound. The Coast Guard themselves have said this put them in a position to suffer loss of life and treasure in high seas. That is EXACTLY where we don't want hulls to fail.

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