The Government made a counter claim of fraud against Daewoo. The Court stated that “Daewoo bid the road construction job improperly and handled its basic management inefficiently.”
The Daewoo Claim was filed under the Contract Disputes Act (“CDA”)8 which has a fraud provision. The Court found that the Daewoo claim of $64 million was fraudulent. “Plaintiff (Daewoo) made the claim for purposes other than a good faith belief that the Government owed Daewoo that amount. Plaintiff in fact did not believe the Government owed it $64 million as a matter or right.” The Court went on to state that “Plaintiff (Daewoo) did not honestly believe that the Government owed it the various amounts stated when it certified the claim.” The Court found Daewoo intentionally inflated their costs and had re-claimed costs that had been rejected in an earlier claim as further evidence of fraud and bad faith. In an 85 page opinion the Court found that “Daewoo did not prove liability. Plaintiff's claim is fraudulent.” Daewoo acted in egregious bad faith. Because of their bad faith, false claims, and fraud, the Court ordered Daewoo to pay $50.6 million to the Government. This was a very expensive lesson to Daewoo of how not to do business with Government.
The moral to this story is to prepare proposals and administer contracts honestly without misrepresenting any material facts.
False statements or false claims can be extremely costly to you, and could lead to felony prosecution. Using a certified claim as a negotiation ploy can lead to disastrous consequences. Preparation of proposals should be conducted as accurately as possible, and performance of the contract should be executed without any subterfuges, evasions or other improper conduct. Don't take any chances by engaging in bad faith conduct - you could lose your company and all you have worked so hard to achieve.
Tom Petruska, Owner
Contracts Unlimited, Incorporated
Footnotes:
1. Re-statement, Second, Contracts, § 205 (1981)
2. Uniform Commercial Code § 5-102(n)
3. 31 U.S.C. 3729(a) makes illegal any “false or fraudulent claim for payment or approval.”
4. Restatement, Second, Contracts
5. Black's Law Dictionary, 8th edition, 2004
6. TECOM, Inc. v. United States, 66 Fed C. 736 (2005)
7. 41 USC 601-613
8. 41 U.S.C. 601 et seq.
The foregoing is not legal advice nor is it a legal opinion. Please contact your attorney for legal advice.
