Government wins $128 million settlement from GSA contractor

A General Services Administration contractor will pay $128 million to settle a lawsuit alleging it failed to offer the government its best commercial pricing on information technology goods and services. The settlement is the largest to date associated with GSA's former Federal Supply Service.

According to the complaint, filed in April 2006 at the U.S. District Court for the District of Columbia by Washington law firm Ashcraft & Gerel LLP on behalf of former Network Appliance Inc. employee Igor Kapuscinski, the contractor knowingly withheld from GSA information on discounts offered to commercial customers from 1997 to 2005. This constituted an alleged violation of the contract's price reduction clause punishable under amendments to the 1863 False Claims Act.

Network Appliance, now called NetApp Inc., is a data storage and management firm headquartered in Sunnyvale, Calif. Under the terms of the settlement agreement, the firm must pay the government $128 million plus interest, part of which will go to Kapuscinski. The company did not respond to a request for comment on Tuesday.

In February 2003, a GSA analyst allegedly contacted Kapuscinski, then-manager of administration and procurement at NetApp, for help on a six-month review of orders. Kapuscinski notified NetApp senior managers of the request and told them NetApp had failed to give GSA the same price decreases offered to commercial customers, as required by law, according to the complaint. But senior managers reportedly dismissed or failed to address his concerns.

In addition, Kapuscinski allegedly encountered significant resistance from Anna Manzano, senior director of Americas sales strategies at NetApp, who threatened him with a demotion if he continued to push for the records. Under the terms of the contract between GSA and NetApp, the firm was required to offer the government the same discounts as its best commercial customers. But during a meeting with GSA in July 2003, NetApp officials made no mention of the commercial discounts or failure to comply with the price reduction clause on the firm's contract, according to the complaint.

"The information NetApp provided to the government wasn't fair and accurate," said H. Vincent McKnight, lead counsel for Kapuscinski in the lawsuit. McKnight said Kapuscinski contacted his firm after he failed to convince his supervisors of the fraud.

Kapuscinski chose to file a whistleblower lawsuit against NetApp on the government's behalf, meaning he is entitled to 15 percent of the final settlement, or $19.2 million.

The government investigates qui tam cases, or those involving whistleblowers alleging federal mismanagement, to determine if they have merit. In this case, the Justice Department and GSA inspector general both followed up on Kapuscinski's complaint.

"Pricing issues are fairly common in government contracts," a spokesman for GSA's office of the inspector general said. "When a company fails to let the government know that prices have come down during a contract, and continues charging higher prices, it can result in what has happened in this case."

McKnight said the case could be the tip of the iceberg because GSA did not engage in extensive post-award contract auditing from 1997 until 2005. GSA's post-award audits uncovered pricing defects in 84 percent of cases reviewed, he noted.

"I think first of all, if they have time, [contracting officers] need to make a closer examination of the pricing information they are receiving from vendors," McKnight said. "Much of this can be nipped in the bud by an examination up front. Contracting officials ... I think they assume they are [getting] the best and most accurate information from the firms, and I'm not sure that's an appropriate assumption."