Identification, Prevention, and Remedies for False Claims in Highway Improvement Contracting (2011)

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15 a change in venue, which the D.C. Circuit denied. What made that case worth watching, however, was that it involves allegations by the U.S. Government that a contractor violated the FCA by making false and fraudulent statements in the representations that it submitted in order to obtain prequalification for a federal agency contract.72 If the ongoing litigation in this case later results in a substantive ruling regard- ing the applicability of the FCA to prequalification submissions, such a ruling could have significant prece- dential value for other future FCA cases involving con- struction projects. Many FCA cases are settled rather than litigated to decision, so the issues that arise in such cases often fail to rise to public awareness through reported judicial precedents. Occasionally, however, judicial rulings on such cases establish interpretations of potential future applicability in false claims litigation, as one post-FERA decision by the Ninth Circuit illustrates. In Cell Therapeutics Inc. v. Lash Group Inc., the U.S. Govern- ment and a qui tam relator had entered into a set- tlement agreement with a defendant in an FCA case.73 Subsequent to the settlement, the settling defendant commenced an action against a third party, seeking contractual indemnity for the defendant's liability under the FCA, and also asserting certain independent claims under the Act. Reviewing a lower court decision on a motion to dismiss, the Ninth Circuit held that the FCA does not preclude such claims for indemnity by a settling defendant. This ruling appears to have the potential to allow other defendants who settle future cases to seek indemnification from involved additional parties. SECTION III. FEDERAL ADMINISTRATIVE INITIATIVES USDOT Office of Inspector General Role Within USDOT, the Office of Inspector General (OIG) is mandated by law to conduct independent and objective audits and investigations in order to prevent and detect waste, fraud and abuse.74 Among other things, the OIG conducts investigations into al- leged or suspected collusive bidding and price fixing, false claims for labor and materials, DBE fraud, and bribery of public officials involving USDOT funded programs. OIG also works with t h e Federal High- way Administration ( FHWA) and other USDOT units, and with state and local stakeholders, to combat fraud, waste, and abuse affecting federal-aid highway and 72 In re D.R.C., Inc., slip copy 2009 WL 5125602 (D.C. Cir. 2009). 73 Cell Therapeutics Inc. v. Lash Group Inc., 586 F.3d, 1204, 2010 WL 22686 (9th Cir. 2010). 74 Inspector Generals Act of 1978 as amended by the In- spector General Reform Act of 2008, Pub. L. No. 110-409; available online at http://www.ignet.gov/pande/leg/pl110- 409.htm (last accessed June 12, 201 0). bridge programs.75 In FY 2008, OIG issued 90 audit reports, which identified $347 million in financial recommendations, and conducted criminal investiga- tions resulting in 122 convictions and $530 million in fines, restitutions, and recoveries. 76 1. USDOT OIG Hotline Complaint Center and Contacts OIG also maintains an OIG Hotline Complaint Cen- ter that receives reports on false statements, false claims, contract procurement, grant fraud, product sub- stitutions, bribery, kickbacks, conflicts of interest and ethic violations, etc. 77 2. USDOT OIG Initiatives Acting in coordination with FHWA, the Antitrust Division of DOJ, and other agencies as appropriate, the OIG has embarked on a series of initiatives flowing from ARRA and FERA. OIG's goals mandate conducting timely oversight of USDOT's implementation of ARRA programs, including new tracking and reporting re- quirements; conducting proactive and reactive grant fraud investigations involving ARRA-funded programs and projects; conducting investigations of collusive price fixing, false claims involving labor and materials, and bribery of public officials; and promoting joint efforts with USDOT units and state and local stakeholders to combat fraud, waste, and abuse.78 They also conduct outreach activities and conduct fraud awareness and prevention activities to inform USDOT staff and grant- ees (including contractors) at all levels of government about how to recognize, prevent, and report suspected fraud.79 3. Training Activities OIG also conducts fraud prevention awareness train- ing throughout the nation. As of January 31, 2010, the OIG had provided 168 training sessions for more than 75 U.S. Department of Transportation, Office of Inspec- tor General, DOT OIG Strategic Plan, Sept. 2009, available online at http://www.oig.dot.gov/sites/dot/files/OIG Strategic Plan 2009_508.pdf (last accessed on June 12, 2009). 76 For information about the USDOT OIG, see http://www.oig.dot.gov/about-us (last accessed June 10, 2010). For access to USDOT OIG audit reports, see http://www.oig.dot.gov/announcements (last accessed June 1 0 , 2010) and http://www.oig.dot.gov/semiannual-reports (last accessed June 10, 2010). 77 See http://www.oig.dot.gov/hotline (last accessed June 10, 2010). 78 See the USDOT OIG's Strategic Plan dated September 2009, available online at http://www.oig.dot.gov/sites/dot/files/OIG_Strategic_Plan_200 9_508.pdf (last accessed June 10, 2010). 79 See, e.g., http://www.oig.dot.gov/oig-recovery-training (last accessed on June 10, 2010), including a detailed USDOT OIG PowerPoint training presentation, "Fraud Awareness and Prevention," available online at http://www.oig.dot.gov/sites/dot/files/Website_2009_ARRA_OI G_General_Presentation.pdf (last accessed on June 10, 2010).

16 11,000 individuals nationwide, including officials from FHWA regional offices, state DOTs, and other public agencies. As of January 31, 2010, OIG had also received 184 complaints and accepted 16 for prosecution.80 The OIG continues to monitor fraudulent schemes in the contracting process and to issue audit reports concern- ing various administrative practices, develop work plans, and conduct outreach to various state DOTs and public authorities.81 The USDOT OIG has, among other things, prepared a training video on False Statements and Claims to pro- vide government officials and members of the public with an understanding of common fraud schemes and to strengthen collaborative efforts aimed at preven- tion and detection of such schemes. This video is po- tentially useful for any federal, state, or municipal transportation officials.82 OIG's recent 2010 Recovery Act Work Plan provides for conducting numerous audits, reports, and scans. Some of the more noteworthy upcoming projects include vulnerability scans of DOT recovery Web sites, an audit of USDOT's plan for ensuring Recov- ery Act data quality, oversight of local agencies' pro- jects, review of Federal Transit Administration (FTA) oversight of major transit projects in the New York re- gion, and oversight of the federal-aid state ARRA con- tract award and contract administration process.83 On January 20, the DOT (IG) initiated an audit on over- sight of high dollar Recovery Act projects to deter- mine project compliance with key federal-aid highway requirements of cost quality and construction sched- ule.84 The OIG also provides ARRA Advisories to USDOT and Congress when it identifies vulnerabilities that could impede USDOT's ability to provide effective oversight of ARRA-funded projects. Illustrative of the advisory process is the OIG's May 18, 2009, ARRA Ad- visory concerning USDOT's Suspension and Debarment program, noting deficiencies that could leave USDOT potentially vulnerable to doing business with irre- 80 See USDOT OIG Recovery Act Monthly Report for January 2010, available online at http://www.oig.dot.gov/ sites/dot/files/DOT_OIG_Monthly_Report_Num_11_January _2010_02-05-10.pdf (last accessed on June 10, 2010). 81 Id. The USDOT OIG and the American Association of State Highway and Transportation Officials (AASHTO) scheduled a Sixth Annual National Fraud Awareness Con- ference on Transportation Infrastructure Programs that was held in Arlington, VA, on July 26–29, 2010; for further information, see http://www.preventtransportationfraud.org/ (last accessed on June 22, 2010). 82 USDOT OIG, False Statements and Claims Video, available online at http://www.preventtransportationfraud. org/falsestatementvideo.html (last accessed on June 22, 2010). 83 See USDOT OIG FY 2010 Recovery Act Work Plan, available online at http://www.oig.dot.gov/recovery-act-work- plan (last accessed June 10, 20 I 0). 84 Id. sponsible businesses and individuals.85 This Advisory noted a lack of adherence to USDOT policy time frames, and a lack of oversight. The Advisory was a precursor to a more detailed OIG audit report, which was issued on January 7, 2010. That report focused on the increased risk that the USDOT and other agencies might award contracts and grants to parties that U S DOT would ultimately suspend and debar, and on other weaknesses in U S DOT's policies and proce- dures and internal controls.86 The report referred to a case wherein the Commonwealth of Kentucky had awarded a $24 million contract in ARRA funds to a company that could have been suspended based upon indictments, under U S DOT's policy and the Code of Federal Regulations. FHWA commented that the available evidence was not legally sufficient. The report and the authors noted that the FHWA's Chief Counsel had cited recent action to improve the processing of suspension and debarment cases, which included devel- oping an action plan and dedication of more staff to this effort, steps to expedite cases, and efforts to reduce the backlog to meet the 45-day time period.87 a. Recovery Accountability and Transparency Board, Created by Recovery Act.—AARA provisions created the Recovery Accountability and Transparency Board with two goals: to provide transparency in relation to the use of Recovery-related funds, and to prevent and detect fraud, waste, and mismanagement. Twelve IGs from various federal agencies serve on the board. The board issues quarterly and annual reports to the Presi- dent and Congress, and maintains the www.Recovery.gov Web site so the American people can see how the Recovery money is being distributed and used by the various recipients.88 The board has created an excellent interactive Web site at www.Recovery.gov that provides information on jobs creation, overview of funding, award progress, top states by jobs created or saved by reported recipients, largest awards reported by recipients, contracts awarded or up for bid, and links to OIG and agency- reported data. The board can audit and review stimulus spending on its own or with the various federal IGs; refer in- stances of fraud, waste, or mismanagement to the 85 USDOT OIG, Advisory No. AA-2009-01, ARRA Advi- sory—DOT's Suspension and Debarment Program, May 18, 2009, available online at http://www.oig.dot.gov/sites/dot/files/pdfdocs/Final_DOT_ARR A_Advisory_05-18-09_.pdf (last accessed on June 11, 2010). 86 See USDOT OIG, REPORT NO. ZA-2010-034, FINAL REPORT ON THE DEPARTMENT OF TRANSPORTATION'S SUSPENSION AND DEBARMENT PROGRAM (2010), available online at http://www.oig.dot.gov/library-item/5255 (last ac- cessed on June 11, 201 0). 87 Id., and Tom Holian, FHWA Chief Counsel, Address at the TRB Annual Meeting (Jan. 12, 2010). 88 See The Recovery Accountability and Transparency Board, http://www.recovery.gov/About/board/Pages/TheBoard.aspx and related links (last accessed on June 11, 201 0).

17 appropriate federal IG; make recommendations to fed- eral agencies on measures to prevent waste, fraud, and abuse; hold public hearings; and issue subpoenas to compel testimony. The board has also established a system to report waste, fraud, and abuse. Such reports can be submit- ted: • By using an electronic claim form, • By calling the Recovery Board Hotline (1-877-392- 3922) • By faxing a copy to 1-777-329-3922, or • By regular mail to: Recovery and Transparency Board Attention Hotline Operations P.O. Box 27545 Washington, DC 20038-7958 All Recovery Act projects are required to post whistle blower protection signage, and they are strongly en- couraged to post the Recovery Act Fraud Hotline poster.89 The board has created a Fraud, Waste, and Abuse video that explains what fraud is and encourages the public to report any problems to the board via hotline, fax, or mail, or to contact the IG of the individual federal agency. b. U.S. Department of Justice Antitrust Division Recov- ery Initiative.—1) Training, Publications, and Reporting Fraud.—In response to ARRA, the DOJ Antitrust Divi- sion launched an Economic Recovery Initiative aimed at training government officials to prevent, detect, and report on situations of unlawfully profiting from stimulus funds. A major component of the initiative was and is training government procurement and grant officials, auditors, and investigators on tech- niques for identifying "Red Flags of Collusion" before Recovery funds are awarded. The training is on collu- sion warning signs illustrated in the process called Market, Applications, Patterns, Suspicious Behavior, or "MAP."90 Upon discovery of the MAP indicators or "red flags," officials are taught to report those finding to their IG office or other appropriate authority.91 89 Available online at http://www.recovery.gov/Contact/ReportFraud/Documents/ RecoveryAct20FraudHotlinePoster-RATBLogo.pdf (last ac- cessed on July 6, 201 0). 90 See USDOJ Antitrust Division, Red Flags of Collu- sion, http://www.justice.gov/atr/public/criminal/red_flags_collusion. htm (last accessed June 11, 201 0). 91 Statement of Scott D. Hammond, Before the Commit- tee on Homeland Security and Governmental Affairs, United States Senate, Follow the Money: An Update on Stimulus Spending, Transparency and Fraud Prevention, (Sept. 10, 2009), available online at http://www.justice.gov/ atr/public/testimony/250274.pdf (last accessed June 11, 2010). The Antitrust Division also maintains a Citizen Complaint Center to report concern about collusion and fraud via email, regular mail, or phone. The Antitrust Division has also launched a Recovery Initiative Web site through which consumers, contrac- tors, and state and federal agencies can review informa- tion about federal antitrust laws and division training programs, request training, and report suspicious activ- ity.92 2) Training on Collusion and Fraud Awareness.— The Antitrust Division has provided the USDOT OIG with a comprehensive fraud awareness training pro- gram for more than 2,600 FHWA employees via Web- casts and training sessions conducted jointly with the USDOT OIG around the Nation. The Antitrust Division and the USDOT OIG have also conducted Grant Fraud Awareness Training throughout the Nation.93 The Antitrust Division also provides publications on the three major federal antitrust laws (the Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act) and has available links to Antitrust Enforcement and a Consumer Guide.94 c. National Procurement Fraud Task Force Activities and Resources.—In October 2006, the DOJ created the National Procurement Fraud Task Force (NPFTF) to promote the early detection, prevention, and prosecu- tion of procurement and grant fraud.95 The task force leverages the resources of the federal law enforce- ment community by partnering with the IGs and other law enforcement agencies. The NPFTF is chaired by the Assistant Attorney General of the Criminal Divi- sion, whose goal is to intensify the Government's de- tection efforts and to continue prosecuting those that defraud the taxpayers.96 The Task Force concentrates on civil and criminal enforcement where it has the greatest effect and focuses on defective pricing, product substitution, false claims, grant fraud, labor mischarg- ing, ethics and conflict of interest violations, bid rig- ging, and public corruption with procurement fraud. 1) NPFTF Progress Report, December 2008.— According to a Progress Report published by the task force in December 2008,97 at the end of the Bush Ad- ministration, the task force had: 92 See http://www.justice.gov/atr/public/criminal/ recovery_initiative.htm (last accessed on June 11, 20 I 0). 93 See USDOT OIG PowerPoint training presentation, Fraud Awareness and Prevention, note 74, supra. 94 See USDOJ Antitrust Division, Antitrust Laws and You, http://www.justice.gov/atr/laws.htm (last accessed on June 11, 2010). 95 See About the Task Force, http://www. justi ce.gov/criminal/npftf (last accessed on June 11, 2010). 96 National Procurement Fraud Task Force Progress Report, Dec. 2008, available online at http://www.justice.gov/ criminal/npftf/pr/speeches-testimony/2008/ 12-08progress-report.pdf (last accessed June 11, 20 10). 97 Id.