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.