Many of our clients have been calling to ask whether failure to comply with the Administration’s Executive Order imposing vaccine mandates on federal contractors could lead to False Claims Act liability, and what steps they can take to minimize the risk of liability. Much remains unknown, especially what specific obligations will be included in the FAR clause to be released on October 8. However, we have highlighted a few key considerations that should be front of mind for all contractors and subcontractors.
On September 9, 2020, President Biden signed an Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors, and on September 24 the Safer Federal Workforce Task Force issued a Guidance to implementing the Executive Order. Our prior posts describing the requirements those actions impose on Federal contractors can be found here and here. However, neither the Executive Order nor the Guidance address the consequences of non-compliance by covered contractors. One question repeatedly being asked by our clients is whether non-compliance could trigger False Claims Act (“FCA”) liability and lead to enforcement by the Federal government or qui tam plaintiffs. We address that issue below.
Noncompliance Could Lead to FCA Liability. The FAR clause to be released on October 8 is expected to track the Guidance that the Government issued on September 24, although the precise contours of the clause are unknown. The language in the clause will dictate the specific obligations imposed on contractors and subcontractors (including flow-down requirements), and will serve as the baseline against which contract compliance will be measured. A failure to comply with the clause could lead to a finding that invoices or other payment requests submitted under covered contracts are “false” under the FCA. Contractors should familiarize themselves with the clause as soon as it is released. Quick action will be needed to ensure compliance by the December 8 deadline.
FCA Liability Can Be Imposed Only if Noncompliance is Material to Payment. Contractors that fail to achieve compliance with the obligations in the FAR clause can face liability only if the Government or qui tam plaintiffs can establish that noncompliance is “material” to payment, under the standards set forth by the Supreme Court in the Escobar decision. The question of materiality will depend on a variety of factors, including not only the language in the FAR clause, but also on how government agencies enforce noncompliance with the clause. If the government routinely pays contractor claims notwithstanding evidence of noncompliance, contractors will have strong arguments under Escobar that any noncompliance was not material and they should not face FCA liability. (Note that Senator Grassley and others have introduced controversial legislation that if enacted could affect the burden of proof on materiality.)
New Contracts and Modifications Pose Risk of “Fraudulent Inducement” Claims. Contractors that enter into contracts or contract modifications with the new FAR clause while knowing they will be unable to comply fully with its requirements could face allegations that they fraudulently induced the awards of those contracts or modifications. Such allegations of fraudulent inducement have become increasingly prevalent in recent years, and under some case law can lead to the argument that all amounts paid under the contract constitute damages. However, contractors should have substantial arguments that such claims are not viable absent specific, knowing false statements of future compliance in advance of the contract award.
Qui Tam Risk is High. The vaccine mandate to be imposed on Federal contractors and subcontractors has been highly publicized, and the energetic qui tam bar can be expected to pay close attention to the possibility of knowing or reckless noncompliance. We predict a high likelihood of qui tam lawsuits alleging FCA liability predicated on noncompliance with the vaccine mandate.
Stay tuned for more developments. We will provide our readers an information booster shot after the FAR Council releases the new contract clause.