, NATIONAL SCIENCE FOUNDATION I,-., ,2 , OFFICE OF INSPECTOR GENERAL OFFICE OF INVESTIGATIONS CLOSEOUT MEMORANDUM Case Number: I97050020 Page 1 of 1 In May 1997, we received notice that the Attorney General was served on April 17,1997, with the complaint fded in the United States District Court, Southern District - - of under the qui tam provisions of the False Claims Act in the matter U.S. ' ' - --- - -- - - The complaint alleged that r ,g conspired to file false claims for labor charges against contracts from the Department of Defense @OD) and Department of Energy (DOE),and a cooperative agreement from NSF. We joined an existing investigation led by the Department of Justice and assisted by Special Agents fiom DoD and DOE. Following a bench trial beginning on March 25,2003, and concluding on April 10,2003, on June 12,2003, the court found in favor of 4 - s and against the government on all claims; a copy of that decision is attached. Accordingly, this case is closed. NSF OIG Form 2 (1 1/02) FI [-.!I 03 JUH I;' pn ass y::.)* -..- -.--- UNTTED STATBS DISTRICT CO~ T -,-.-_ I . '. - , , -. CASE NO,- - - . .-- - --., ---, UNITJ3l STATES OF AMERICA ex rcl. I Plaitatiff', 1 STATEMENT OF DCCBION (FED4.CN.P. 52) 'This aclion, btoughr under the False Claims Act, 31 U.S.C. Q§ 3729, uxeq., was su bmhtcd ro thc court for decision anrr a bench trial bcgb~ingon March 25. 2003 and concluding o a April 10, 2003. The rnancr was luru formally taken irnda -submissjonaftcr the partics supplcri~cntedthe 20 1 evldcnciarj record with cxhibill and deposition testimony excerpts. 21 ( I The coun, after wrorul sonridcndon of-all pm~ier.~d for good cause, rcnders iu dcciriun in this mnncr. the cvidmsc, plcadingr and arguments of ihc I 22 24 7-I The governlent and ytri torrr relator .' - - / h d ~ cbrougllt this kction agilinst defadant I I 2256 I j asenlially claiming [lux br rcveral years in the 1990's rcccived payment for unallowable md inflated coils for work pcrromcd by . tliai~nedand .a. L -- _ I I I -.This claini by rhc govcnvncnl ispn'marilyprcdiu[ed an theco~lrcnlionsh a 1 27 1 . was aaliattd wich and uudcr the carnrnon control of t , sn3 rhat, diercforc, il wss irr m*IM7U - - --- . .- L-VC 4*T ,&I I .wa - . ,Ill\. 16.2043 2:16PM t MO 18el F.3 t * - - .. r viohlion of the False Claims A d for _ 1 "pass tluough" lhc profits of .;well as its own profiu wl~en billed the government on ils con plus fixed fce contracts. Although does nor dispucc it passed through h e profits of ' uhen.it billcd the govcnllncnt on ib own contracts, I has stcadfjsdy denied tha ;wus under its concrol. Itis undirpuled that since 1957wkn( - .,h c d1 _ has been;~subsL~mti~l ddcnsc contractor for the ~ovenuncnt,performing imponanr research in -_relaled fields and - . - . --.- afilialulprojecrs. I n 1987,1. - -mbsidiinyoV which was in lurn a subsidiaryof' .~or~oradon "- j. was acquired by ,---_ - . I During the drne Crom July I992 through December 1997, '_-I, contracted witf - AO perform work on numerous contnck il minhintd with such agencies as tlic National Scicrrcc Found~tion("NSF'), the Depamnmt of Energy ("DOE')and the ~ e ~ a t t k oc fnDefense ~ ("D0D"j. Thosc conlracts, issucd on a cost plus Lxcd Ice or cost-reimbunemcnthis, rcquircd 10 co~nyly wid1 ltumcrous regulatoryprovuions. includingtl~cOfice ofManagcmcnl mrlBudgctCirc\rlarA-1 10 C'Circulu A-1 10") and the F d e n l Aqtkician R~gl~latians ("FAR'?. Even before the 1992-1997pen'oclduring whi& -. ,retained the sewiccs of/ hd cmployd the collcept o f utilizing job shop or untporsy Iabar providers. Specifically, duriine rhc 1990-1332 timc pcriod ,utilized rcmponry labor supplied by - I #- - =joint venture putnu oC I which was largely managed by , - - ;a' rnployee from 1975 unril the time she b-c "seconded" to ? ' in 1990. When dissolved 1932, it was tha decision oft .. whnc posnble, io con(inuc ujili~inglcmporuy labor providers . rgely tb avoid the respoiuibilityof accoufling for the cmployecs as cheir own, but also to meet [he 1 mands of flcxible suffing needs. I At the dmc of b 's dissalution, proposed the credtion of 3 ncw staffing ., LO f .andr , the sons of P Nei [her 11 nor ' substantial shlnholdtrof 1 .nqrdid cithcu of them hold a position ofmlnager, director, 27 ' I A secocrdcd employee i s o n ~ w l ~ isoreleased fiornrcguhrempIoymenttotalccanploymultvli L z8 a second company. Tlls employee is, howsrer. rctahcd as m employee of ihc Grrt company ORIY f: accounting purposes. -2- UOcvll70 - ~vlu-cKJ-CW2 LO' 40 l.uJ/'.21v 2025147361 pl04 . . ..Ul. 16.2COj 2: l6PV . . - . NO. 18"c 9. 4 . - ... 1 Based upon the prcsenrationmadcbyi-. - , _,to? land-. .--_,ilwacagrccd 2 -. -would bc formed. Upon incorporation of r - I 1932. !- and *e i I 3 paid $1,000 for all thecompany's stock. A s t a m p loanoff 150,000 w u sccured by ,wia' I I 4 from' ,Aand' securing the loan 5 with their personal guannlccs. '. vrr aEliaccd wi[h i cmd! L and G U _ -,agreed lhal al though -, 1 were the onlysbareholdus and direclars 7 of. - . would cssen~iallyoperrtc and manage , ils presidcnt and CEO, 8 and muld rtccive 20 pment of the profits. i .managed all rspecrs of- .affain 5 I 9 (cg..doily opention. fiscal marrm. cmploym&r decisions) while keeping and 10 infonnsd of si@iri=tsd develapmenls. Durinx rhc timc period in question,- , , , r -- - Was m tnrploy? o f r .secondcdlo / with no duties or nsponsibililies to ' At &cpros;pcctof-__ calcingover rhc rcsponsibit'tyofsupplyingu r n p o w labor rerviccs fiorn -- upon its dissolution in 1992, -,--.?, Senior Vice President. Finance, and ChicC Fin~mciaiOfficcr of I , asked J .,Comptroller o f f - - , to investigate the qucstion o r . . I 15 whelher ( 's issuance d a purchase order to for t a n p o n y iabmm i c c s would violao the I L I 16 "common conrrol" proscription of the FAR rrgulationr? b responsc to (he rquesl of Mr.' . l 7 I ~ r -. . " carefully rcricw& Lhe relevant factors conctminl; ' common control wit11 I - IS II . . - Director ofGovcmmenr Awuno'ng, These raclon includcd 19 cornmoir nluiagornen(, common Cacililiu, a d contr-ctual dationships. I htnaftcr. Mr. : 20 informed sudilon of the Dcrensc Con- Audit Ascncy ("DCAA") off common ow~ership, s conclusions of laclc of I 21 I common conrrol.' The mrlpis mad conclusion or drew heavily upon c4mrnuirfcationsbc[ween - I I .md DOE audiringlconmcting rcpresenlativu on thc earlierand separate question of whether held erecurive pasinant with bath ! and ' 25 I .'.The FAR r~gularion(FAR ;caion 31305-26 e)) limits pmfilc on mler becwem"divisio iubdirl*tonsor a&l~=~is" under the a w n ronlroi o a conlnmr f 4 ,. apparently did not believe itws ncccssa Lo advise DOE audibrs as well because "interface" on such niartcrs had hirioricdly been w i ~CAA. % # . 28 ' - ,did not use the "idenlily o f interestn test of FAR 19.1 01. ~ - I I - .. facilities to were undcr common coetrol. Ald~ough I 2 the DCAAconclvdcd char 10comrnonc~ntrois 1992, that - and rhcr~llycomp~crw~csubjcct I I 3 conclusim w4s short livcd as both bcroreand after 1992 the DCAA concludtd [hat common conuol 4 did nut cxjjl bewocn ( and iu realty companiw. The DCAA's inconsistmr conclusio~ovcr a 5 petiod ofscvcral years was attribulable, in pan. to diffacnt nnalpb and attorneysbeing assigncd to 6 [he f rcaltycompanies a r c by Lhc DCAh SufKct i t to saythat the inconsistmtand nuid dccisiotr- 7 dciing a f tbc DCAA on the realty cascproYided limited guidance to ,h e time i t was con~dering I 8 its oprions with in 1992. + Mejnwhilc. Mr.- _ ---- concluded that and e undcr conunon conuol, ~ c r not cornmunicatd thairconclusion lo his superiors, Ind, in July 1992, the Kumun Resources Depanmcnr dirtcrcd i b Purchasing Otputnrcnt to issue a blankct purchase ordcr for tcmporq labor .' Thcrcafltr, and still in July 1992,/. and mtered into an agreernckl I I3 by which t was 10 bill Cor scr~iccsrendered on Ute purchasc order issued lo I -- ' I thcn advised - -- - anployces,s~iIIavailable upon ~hedinolutianof' ,that rrom that poinr f o M provide job s110p m i c a lo ' - , in efrec~ar suucssor in interest to -I 17 . - M ~ ,-. ,.a buyer wilh ,Purchasing Department, was givcn the task to place the I 1Imanagmcnr 18 purchaseorder wilh, At (he timc, Mr. as r i g direcrion from 1 ofsenior 19 10 "cxpedite8* ptocurmrml in thc form or the purchagc ordu for Ule million. I SS.4 I 20 Mr.1 , h d n g no knowlcdgs u m of providing job shop rcmices, rhs s r ~ i c n c t I w coaridenblc prernnc to issue ths onder.on r rolc iource basis upon ihc mtionak tlw . . ;omperitos had only limited p c n o ~ e pools. l Mr."- ., opcratlng'underthe conslr-in& I, 23 abovc, utilized a cornpetitivc mts malysir done in 1990 in connection withd. I reccnlion of 4 (: : -. sccvices, andjustified the purchase ordu on h a t basis. The purchase orda to for tailp orary I I from ' Thc coun is nwarc that aficrMr. to ' '_ I rcachtd his conclusion, s July 2,1992 rncmonndu~ Job Shop Coordinator, r q u ~ c e dMS. to issue . Althou lhis concrpondcact would appcv to blur ~hclines between ' purchase order to 7 wd) : 8 forjob shop purposes, t wcight of the cridenceindlat and dirtc\ivu regarding 'ob shop rtrvicu fFom rerchuliu own conclusionJ t was illtoncaived olid o no consquencc. and that the memorandum o f f I labor stmiccs was exlentled over scvcral y m ad grtw in S ~ I Cfrom 55.4 million to ovcr S17 I Approximlrcly one yrar l a t e in 1993, Mr. _: 'based on a recomrnenda~ionh m .* - considered outsourcing the janitorial sawices for 4 ,to .-. A cost analyn's was donc, and Mr d e c i d d to award Ihe order for janitorial scrv~cetLO Ulrimatcly, a pucckie onlcr vlar issucd e, - - :by Mr. direction a f Mr.' - Supponing Jocumenntion, of a summary pmcurunent mckarawhm, was prcparcd by Mr. consisti~~g 1 and approved by - . - Purchasing Manager fort _--, _ rt the timc A t the limcof the issuance of the jnni~orid purchase ordcr to - Mr. - oncc again review4 the qucstion of common control and concludd rhcre wGnanc betwcco .rand ,and made ncctssarydisclosures lo D C M on-site auditors that it w u issuing thc jjniton'a1 a w d lo In 1996, D C Mconducted an audit of purcllasc orders (o - --.temporary labor and jwitarial services for the purposc ofdctermimngallowability md nuonablcncss orcosts under PAR 1 14 given Ulc information bat. - .was r i r l a ~ c dpafly."' Tbe DCAA auditor who conducled the I audit L- ',concluded no common control cxistcd between and ,and thac cosu clailned by - ...wcrc pmpa. The ;ludil also concluded that thcjanitorial suviccs should be awardea pursuant to compcritivcbidding. Thmforc, DCAArequcstcd (O ohlain competitive bids. not because costs w e e questioned, but btwuac it was a related party. ThcrcaRer, in Oclobcr 1996, .solicited wnipctitivcbids forjmitorid services. ' .formed a commi~tecto oversee the biddirlg proccss and \o review bi Js received. Mr. uhim~tcly rcvicwcd findings and recommendations by chc comrnirrcc and made the decision i'o rerain ,- foyjanitorial sawices evdn though its bid was S I W.000 Ilighcr dun all other bids. Mr. ' J hased his decision upon his conclusions rhar uas as good or betla than any biddcr md that its cmploycc benefits wcrc superior. Mr. ' - wasprepared to disallow the entire f 100,000diffcrcnrial bcnwccn "' .and [he next highest bidder and so advised DCAA. Instead, Mr ' ,J was able to I 26 negotiate a S50,000 reduction &om - . and disallow (not clmge to thc govcmmcn~)the I ' T h e ~ C A A V ~ a ~ ~- r o v- dl -i d enecessaryinfonation d by( ad was a ~ c t k j c ownd (md that r was a sccondcd cmploycc of '-- --.. dud 314 '(A1 P.87 . . -rr .-C.W *Y--.l Y U J , ~ ~ V . .JuIt I b. / L U j 1 . lbrM NU. l g d ~ r. I L i . - - .. In a sepustc DCAA audit following _ . bidding and correction process with respect to i~on'nlservices, the D C M coucluded that thc corrective actions u n d a k e n by _ - - complied wit11 isr DCAA ruon~rnendations.This brought to 3 close the auditing pmcus. CIcarly. the purchasc ordm issued by . ?or lunponr). labor md janitorial sewices to did not constilute thc assignment of govcrnmcnr contncu or sub-contraas. Fufier, k t purchase orders did not constitute Governmart sub-contracts. DISCUSSION' The Eake Claims Act Thc falsc Clsrns Act provides civil liability for any p a o n who; (1) knowinglypresmk, or causes to bcpmm(t3 to an oficuor employee oftheunited States . Govanmerit. . a hlsc or frauduIent clainr for payment or approval; (2) knowingly makes, uses or causes k be ma& or used, s Talse record ot nalemml to g a s false or fnudulmt claim paid or approved by the Govunkcnt; (3) coaspircs to dcfnud thc Govcmmcnt by gming a fdsc or fudulcnt chim allowed or S.C. $3729(a)(l)=(3). In 1986 bngrcss a m a d d Ulc FCA lo dcrie ihc t m Ynowinglf' ld a person who, with respec1to infomation,"(t) has actual knowledge o f ~ hintbnnation: e (2) acts bcntc ignonnccof thc truth or Wsityofrhcinformrtion; or (3) acts in rccklcss dimgad ofd~c r falsity of the infomr(ion." 3 1 U.S.C. Q3729(b). Knowkdge, with respect ro n cotparation. is dercrmined fromthe aggregate of its employees* 'TA] corporaLioncannol plead innocmca by asserling ihal~he infonnalionobtaintdby seven1 emplo ees war not ac uircd by any one individual who then would have d* comprehend I* full impon. kuhzr the c o ~ o r ~ l i oisnconsidered to have ~cquircd the collccGve knowledge of irs employee and is held responsible for thcir railurc to act accordingly. s v. Bank of Ncw E n - 021 F 3 d 844, 856(ln C i r . ) , m , 484 U.S. 943 26 (1987), 27 Cammob Control 25 FARsecrioa31.205-2G(c) li~niuprofiuon sales behm"divisions. subdivisions, subsidiaries -6- oo-wa i v v r. lu. ( V V J L- I Jtlr ....."*-.."", -"b 14"a . . ., r ..UO . .. . . I I - -. .. . . I or affi1ia~cs"undwchecommon conlrol of rconlractor. According to FARZ 101, " ' ~ ~ l i l i a rncans ~~x' I 2 associated businsst concerns or individuals if, dircqly or indirectly, (a) dthcr oac c o ~ ~ * lor c sr. I 1 13.101 also providcs yidmcc on Lhe issue of common control a d -tion, 5 whnhn afiliaion exists. considemion is givcn to $1 qpmprirte fadow imludiu common ( "hdetcrnlining I I G ownership, common mznagcmcnt, 2nd con~racrualrcluionships." (a) Nature o f Corltrol Evcty business concern i s considcrcd as having one or more panics who dircctly or indirectly control or have Ihe power to contml i C Control may - bc aQirmadve or ncgalivt and il is immaruiol wllelhqr i t is cxcn;iscd to long is the powcr 10control cxisu. (b) Meaning of "pany or parties:' The lenn ''party" or '*panicsu includes, but i s not Iimitcd to bvo or more persons with an idenbty of interest sudi rs mcmbers of the wmc [hrnlly or pcnoru 4 t h common invutnients in more lhan one conccm. In determining who controts or has the power lo control a cnncem, persons with an identity o f inlcrcst may b e treated as though tbty were one, son. 13( The prcpoadrmre of cvidu~cein chis a r c crtablirher r lackof commoncontrol between I AY 14 and Lt is undisputed that the sole slrarchoIdcrs of -. :wm " ad I S Lhe sons ori ;and [hot the - dons held no dircct sharcholda intcrcst in nor did cithcr . 16 of the sons hold my positions of mawgunem. anployment or influence wid, indeed, t h i A I 17 1 R sons. dlhoupb owners o f . - . wcrc more in the nahrrc of ab~enteeowncrs of I 'ccding managcmcnt and daily opcmtio~~d d c c i s i o n ~ m ~tog t No evidence was I 1I I 19 adduced at vial char the' J sons cxcrciscd any influcncc ovcr s decisionmaking process, either 20 in conncclion wilh hedecision to ouuouruo lo - or regardinganyoher martcr. . I 21 1 on the other h d , the PruiJent ;md CEO of . ,held no ownership intu&ia ;nor did I II 1, occupy any official or managcrncnr position with Although ' ' '- I 23 ancndsd dirccton' m a l i r y s and provided input mricemhg the decision of b 10 oulsourC8 temporary labor and jani~on'alsewices, Ms. ' .into one ofcommon connal or ownmhip. Indead. to Cheerlentl h c ~ o v ~ m cmay l did not transform dac relationship of ' 25 (I n t contad I 'TOthe extent) land ' -.-,held any shareholder inwest in r ,such interest I fmln lh+r buleficial,intern1 in a family ~ u which r held a minor inrerat m s par+. Eve .tent llrnit=d 1 conrldsnng ihs ulsnttly of interest test r a fonh in FAR sostion 19.101(2), the .- interest in '- 4 0 s notwcigh heavily in Gvor ofa finding:of commo remote beneficial shareholder conlrol botween '- and, -- - Jut. IU. LVllJ 1. lllll~ .--- ....t r*- I.,", .-I .. , I .U> I ,! . - - .. . - steadfist rcfi~salto discount he entire S100,OOO differential on the janitorial bidding wmpctition uudermincs r hr contention. Mortover. .did not . -.- shjrc common spnce'with or cngage in husintss in the same induary. Although r 's financing was provided by.. , a company afilialtd with the finu~cingappured lo be st anii's length, at markel rdlcs, and with arcvolving linc ofcredit beingdeb~smicedby,----- a( all re1evant timcs. The court is mindful thar ir obsclved at the rime it c led on r motion for summary ;'korkcd for cndtics rcIatcd to - and f -- " but the hown lhat their rdariwhjp with 'was, hdccd, c x m c l y alhmttd. Funher. the ;elationship betwtcn .and was fully disclosed to DCAA which did not Iationship in any of its audit repoils. The government may point out rhat ir was not the lo C'CC out hu3. Howcuu, it was thtresponsibility of DCAA to cmurc tfU: .'s omplied with FAR in all rdpccts. In sum. the government has Iailcd to establish by a ptepondeance ofthe M'denco that ,and wcrc subject to common control, - has succcssfu1lyovercome thc govcmmenr's assmion' Kaowlcdge ofSubmission of False Claims As a mattcr of law. because there was no commou control berwrcn ( .and thcrc subn~itttdbyi i to tlrc govcnlrncnt. In the alternative, wen assuming common .Lhc court finds that the government has failed to es~dblish nce rhu i \ &her knowingly or recklcrrly submitttd false claims. nship between i \ and c was rqealtdly disclosed to DCAA. '3 fonnatioa $.Senior Vice Presideat of 1 L uked 4 \'I to invutigne wh& the issuance of a purchase ordtr to would scriplionof the FARrepulatians. ~ f k considcrin~ r nlcvlnt factors gement, facilities and contractual relarionsllips. reasonably I porary labor purchasc o d c e to :was appropriue, The I ween and / : is wen marc attcnuotcd rhan the -8- 0oev1070 . . .. -.- relatiotlship betwccn - - and the rdty corn panic^ when: thc DCAA round that canunon control did not cxisi (except for 2 limited period of timc in 1992). 3 4 1of rhc circunrstmcts Funhernegaung chc clement oRnowlcdge, or~ddess belwccn and disregard, is ( rcprding common conkol. ,'r repeatcdsvrlmionr The outsourcing of the 5 tcmporvy labor strvices to , occumd onlyrfta A undertook an analysis othcton baring ' G on common contml. Further, lhc 1993 awi* of thejanitorial S C N ~ C C Spurchasing ordtroccuned only 7 aRcr a cost analysis was pcrfomed and disclosure was mdc to DCAA's on-silo aurlilors. Again in .. .. 1 A - 8 1996 D C M sonduclul an audit of s purchass ordcra to . and conclridk lhal under I 9 applicable FAR nguldons lhsl .-- )and iwcrc uatrclarcd pjrties. Tht DCAA auditor,1 101 f collcluddd that no common conrrol exisladand (he costs submitted by ' were propcr. I 11 While the DCAA requested cornpcritivc bids, ir did so not because ofqutsCionable costs but becausc I 12 of reInted p.my issucs. fully complied with DCAA's request and, in r sepuatc D C M audit, the 13 PCAA concludcd that the corrcctivc actions t a h by r \cornplied with i l s tccommcndation. On this I 14 record, PI-aintifffdils to establish that acted with the rcquisitc ctatc of mind. For the foregoing reasons. the coun finds in favor of1 md against rhe government on alt .. TT IS SO ORDERED. DATED: 6,hc ,2003 I - - - Vnited States Dlstnct Judge . .
Published by the National Science Foundation, Office of Inspector General on 2003-07-30.
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