Two recent False Claims Act (FCA) settlements between the Department of Justice (DOJ) and transportation companies point to the continuation of a recent trend by the DOJ to use the FCA as a significant enforcement tool against transportation companies doing business with government agencies. In addition, the settlements underscore the importance for transportation companies —including automotive, aviation, trucking, rail, and maritime shipping providers– of recognizing and mitigating risk and ensuring effective compliance programs when providing services pursuant to government contracts.
Recent settlements reflect a continued focus by DOJ of utilizing the FCA against transportation companies
In September, DOJ announced that it had reached a settlement with United Parcel Service (UPS), the multinational package delivery and supply chain management company, for $8.4 million. According to DOJ's press release, DOJ alleged that UPS had overcharged multiple federal agencies between 2007 and 2014 for package delivery services under a General Services Administration (GSA) contract. The government alleged that UPS violated the Price Reductions Clause, which is a effectively a most favored customer clause requiring contractors to give the government pricing that is at least as favorable as that offered to certain other customers.
Just one month earlier in August 2019, DOJ announced that it had settled a FCA suit against American Airlines Inc. for $22 million regarding allegations that the international airline had falsely reported times it transferred possession of U.S. mail to foreign postal recipients. In that matter, according to DOJ's press release, American Airlines had contracted with the United States Postal Service (USPS) to take mail from various locations in the U.S. and at Department of Defense (DOD) and State Department locations. After collection, American Airlines was required to submit electronic scans reporting the time the mail was delivered at the delivery site. The contract set forth penalties for mail that was delivered late, and DOJ alleged that American Airlines falsified the delivery times it transferred possession of mail in violation of the penalty provision.
In both cases, DOJ credited the inspectors general for the GSA and USPS, respectively, for investigating the allegations. In the American Airlines matter, the Special Agent of the USPS Office of Inspector General was quoted in the DOJ press release as saying that "[t]he Office of Inspector General supports the Postal Service by aggressively investigating allegations of contractual non-compliance within the mail delivery process."
A growing trend: FCA settlements in the transportation industry since 2015
The recent settlements do not stand as isolated events in the larger FCA enforcement landscape.
Since 2015, DOJ has settled at least five additional FCA cases against seven transportation companies cumulatively totaling at least $42 million. The defendants in those matters represented a significant cross section of the transportation industry, including a previous matter involving UPS as well as a container and shipping company, a cargo handling and stevedoring firm, an ocean transportation company, a trucking company, and two airlines, and the relevant allegations in those matters spanned agencies across the government, including allegations related to contracts with the GSA and USPS as well as the Department of Defense (DOD), U.S. Transportation Command, which provides support to DOD, and the United States Agency for International Development (USAID), which administers humanitarian food aid programs.
According to the press releases for these matters, several of the cases were initiated by the government, but two of the settled cases were initiated by relators who filed suit under the qui tam provisions of the FCA,1 which permit private persons to file suit alleging violations of the FCA on behalf of the government. Just last year, DOJ intervened in yet another qui tam complaint brought by an individual against a freight carrier. In that case, DOJ alleged that the freight carrier defrauded DOD by over-billing for shipments with inflated weights. That case remains pending.2
While these cases represent an ongoing trend, the DOJ has recently signaled a heightened interest in the government contracting arena. On November 5, 2019, DOJ announced a Procurement Collusion Strike Force (PCSF) focused on detecting and prosecuting antitrust crimes and related schemes that undermine the integrity of the government procurement process. Although the strike force appears focused on discovering potential criminal violations of federal antitrust laws, the increased focus on government contractors is likely to result in enforcement actions pursuant to other federal laws such as the FCA, either as parallel proceedings or as an alternative to criminal enforcement. Indeed, several significant FCA cases utilizing an implied certification theory have originated with allegations of bid rigging, and the strike force could spur activity by whistleblowers to file new qui tams. At a minimum, the strike force signals that DOJ intends to aggressively enforce federal law against government contractors.
Take action: Managing risk associated with government contracting
All government contractors face risk associated with conducting business with the government, and one area of such risk is that certain representations to the government may later form the basis for allegations of FCA liability. For transportation companies, these risks are no different. As recent settlements make clear, these risks include FCA allegations involving pricing and logistics requirements laid out in the relevant contract and pursuant to a range of federal regulations. Although contracting with the government historically has been a small part of the overall business of most U.S.-based transportation providers, the FCA provides for steep penalties including treble damages and fines. As reflected by the settlements collected in this article, FCA allegations can result in multi-million dollar settlements, even for transportation companies. Therefore, this is a risk area which many transportation companies should consider devoting greater attention to going forward.
These inherent risks of contracting with the government need to be managed and mitigated in an appropriate manner. Transportation companies should ensure that their government contract compliance frameworks are appropriately designed and implemented to prevent and detect violations of the myriad federal requirements applicable to government contractors, but also the specific and often nuanced contractual provisions they may have with federal agencies. To do so, transportation companies should evaluate the sufficiency of their compliance programs with each new government contract or amendment that is executed, and should periodically undertake government contracting risk assessments to ensure that all of the relevant contract requirements (including pricing, delivery, compliance and other performance mandates) are being tracked and that appropriate policies, procedures and controls have been implemented to ensure compliance with the contract requirements during the applicable term.
Footnotes
1. United States ex rel. Doe v. Beam Bros. Trucking, Inc., Civil Action No. 10-657 (D.N.J.) and United States ex. rel. Raggio v. Jacintoport International, LLC, et al. Case No. 1:10-cv-01908 (D.D.C.).
2. United States ex rel. Hannum v. YRC Freight, Inc.; Roadway Express, Inc.; and Yellow Transportation, Inc., Civil Action No. 08-0811(A) (W.D.N.Y.).
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