FCA Claim Cannot Survive On Allegations of Fraudulent Conduct Alone; Must Assert A Fraudulent Claim For Payment

The False Claims Act (“FCA”) is the primary vehicle used by the Federal Government to protect itself against fraud.  The FCA permits a private whistleblower (a “Relator”) to sue a contractor in the name of the United States, and to be awarded a portion of the damages recovered by the government.  That is exactly what a former employee attempted to do when he brought a claim against the largest contractor for the United States Army, KBR, Inc. (“KBR”) in U.S. v. KBR, Inc.

Relator claimed that after KBR was awarded a contract under the United States’ logistics civil augmentation program (“LOGCAP”), KBR failed to perform the Standard Operating Procedures (“SOP”) set forth in the Contract.  Not only did KBR fail to conduct the required compliance procedures, but according to the Relator, KBR falsified its log entries to fraudulently show that proper compliance testing was done, when in actuality, none occurred.

Despite successfully alleging fraudulent conduct on the part of KBR, Relator’s FCA claim failed to survive a 12(b)(6) Motion, and was promptly dismissed by Judge Gerald Bruce Lee of the U.S. District Court for the Eastern District of Virginia, in Alexandria.

The central question in any FCA action is whether a contractor presented a fraudulent claim for payment.  The Court reminded the parties that an FCA claim will not arise just because a contractor is engaging in fraudulent conduct.  Instead, the contractor must actually request a fraudulent claim for payment from the government to give rise to an FCA action.  The Court refused to infer that the creation of false logs by KBR meant that KBR received payment from the government as compensation for testing that never took place.

KBR’s falsification of its log entries may give rise to a breach of contract claim against KBR, but do not give rise to an FCA claim, which is limited only to payment of false claims.  The Court specifically states, “Whether KBR provided satisfactory services is no concern of the FCA so long as KBR did not bill for tests it never performed.”  Without any allegations that KBR actually billed for tests that were never performed, the Complaint failed to state of cause of action under the FCA and was dismissed.