United States ex. rel. Bettis v. Odebrecht Contractors of California, Inc.
393 F.3d 1321 (D.C. Cir. 2005)

By Robert T. Sturgeon

A contractor entered into a contract with the Army Corp of Engineers for construction of the Seven Oaks Dam in San Bernardino County, California. The plaintiff was an alleged “whistleblower” who worked for one of the contractor’s consultants. Plaintiff alleged the contractor had violated the federal False Claims Act (“FCA”) by fraudulently inducing the government to enter into the contract by knowingly submitting a bid that was too low, with the intent of later making up for the loss by requesting change orders for extra work.

The trial court granted summary judgment to the contractor on two alternative grounds. First, the trial court ruled that to state a claim for fraud-in-the-inducement under the FCA when the allegation is that the contract was for a fraudulently low price (as opposed to a fraudulently high price), the plaintiff must allege and prove that one or more claims for payment made under the contract were in themselves fraudulent, not just that the contract price itself was fraudulently low. The trial court reasoned there was no reason to penalize a contractor for a fraudulently low bid because the government would benefit from the bid being low, not suffer.

The United States, which was not a party to the case, submitted an amicus curiae brief contending that the fraud-in-the-inducement theory of liability under the FCA is to be applied equally to fraudulently deflated bids as well as collusive or fraudulently inflated bids. Second, the trial court ruled in the alternative that the contractor was entitled to summary judgment because the evidence the plaintiff submitted was not sufficient to support his claim that the contractor fraudulently induced the government to enter the contract.

The Court of Appeals for the District of Columbia Circuit declined to decide the issue of whether a plaintiff claiming fraud-in the-inducement under the FCA by means of an alleged fraudulently low bid is required to show that one or more claims for payment submitted under the contract were themselves fraudulent, or whether it is enough to show that the bid itself was fraudulently “deflated.” Instead, the D.C. Circuit affirmed the decision of the trial court on the alternative ground that the plaintiff failed to present sufficient evidence to establish that the contractor fraudulently induced the government to enter into the contract.

Plaintiff contended that the contractor failed to perform adequate quantity take-offs in calculating its costs for its bid, and that therefore the contractor had presented a fraudulent estimate of its costs to perform the work to the government. The court held, however, that the bid was not an estimate by the contractor of its costs to perform the work, but was merely a offer to enter into a contract, and therefore ruled that plaintiff’s evidence could not support a finding that the contractor violated the FCA.

For more information please contact Robert Sturgeon. Robert Sturgeon is a senior attorney in the Construction, Environmental, Real Estate and Land Use Litigation practice group in the firm’s Los Angeles office.