Outlook 2018: The Five Most Important Federal Contracts Cases

• 2018 may see big rulings on foreign military sales, battlefield immunity, commercial item competitions

• Crucial False Claims Act decisions could occur, as well

2018 may provide government contractors and false claims whistle-blowers with answers to a few big legal questions.

The top five government contracts disputes that could be be decided this upcoming year concern:

• whether the Army may choose a combat data procurement path for itself;

• whether a foreign government can sue a foreign military sales contractor when a deal sours;

• whether a valid false claims complaint must satisfy one or two pleading steps;

• whether ethics infractions made a difference to the Army’s relationship with a helicopter contractor; and

• whether soldiers harmed by waste burn pits may sue a defense contractor for their injuries.

Palantir Knows Better Than the Army?

The Army is appealing a court ruling that the military service didn’t adequately consider commercially available options for building a $100 million integrated combat data system, the Distributed Common Ground System 2 — specifically, an approach offered by Palantir USG Inc., a data company founded by billionaire Peter Thiel.

The Federal Circuit in Palantir USG Inc. v. United States should let the Army approach the system as it wants because it reasonably concluded that the complexity of the procurement demands reliance on a single indefinite-delivery/indefinite-quantity contract, and that Palantir’s commercial items couldn’t meet requirements, the government said.

A commercial item is a product that is readily available to the general public or nongovernmental entities, and purchasing them can allow the Defense Department to reduce acquisition costs and take advantage of innovations.

If the Army’s appeal fails, “Palantir would be important in all procurements to clarify the government’s obligation to meaningfully consider existing, commercial item solutions,” said Richard P. Rector, chairman of DLA Piper’s government contracts practice in Washington.

“It would be particularly important in cases where companies have a commercial item solution that meets the government’s needs, but the procuring agency decides to spend significantly more money to develop its own proprietary solution from scratch,” he told Bloomberg Government. “Surprisingly, although one would think that should never happen, it does, at the expense of the war fighter and the taxpayer.”

Freeze to Foreign Military Sales?

National security may be at stake in a dispute involving an unsuccessful attempt to upgrade South Korea’s F-16 fleet through the Foreign Military Sales program in the Fourth Circuit case BAE Sys. Tech. Solution & Servs. v. Republic of Korea’s Def. Acquisition Program Admin.

South Korea sued BAE Systems PLC to recover a $43 million bid bond from a “best-efforts” agreement after the parties failed to agree on the F-16 price.

The dispute raises the question: If South Korea is allowed sue BAE in a Seoul court, would that have a chilling effect on defense contractors participating in the nearly $42 billion FMS program?

A decision “requiring BAE to appear in Korean court in this action would be surprising to government contractors,” said Brian Egan, a partner with Steptoe & Johnson LLP in Washington and a former legal adviser with the State Department.

“It would probably lead to some second-guessing by contractors of whether to participate in FMS sales, or at minimum, to think carefully through their terms for participating in FMS sales,” he said.

Does It Take Two to Raise a False Claim?

The Ninth Circuit will decide how specific a valid false claims complaint must be in United States ex rel. Rose v. Stephens Inst.

The U.S. Supreme Court in June 2016 greenlit the implied certification theory of liability under the False Claims Act in Universal Health Servs., Inc. v. United States ex rel. Escobar, which attaches liability to contractors that request payments while concealing noncompliance with critical requirements.

But Universal Health was arguably inadequate because litigants have been grappling over whether a valid complaint must merely plead materiality, or if it must also identify specific misrepresentations a defendant made about its products or services to the government.

Materiality concerns whether the government would have withheld payment to a contractor had it known about allegations of noncompliance.

Whistle-blowers can’t win their education fraud case because they can’t identify misleading representations an art university made to the government, the university said. Whistle-blowers, meanwhile, said Universal Health doesn’t demand satisfying that second step.

A federal court split on this issue is in place, according to a Supreme Court petition filed this summer. Parties reached a settlement in Triple Canopy Inc. v. United States before the Supreme Court could jump back into implied certification.

The Ninth Circuit’s decision will establish whether West Coast federal courts are whistle-blower-friendly. Regardless of the winner, the decision will call attention to a Universal Health gray area the Supreme Court may need to shore up.

Did Bribery Taint Chopper Contracts?

Several cases have shown false claims defendants how to successfully argue that alleged misconduct wasn’t material under Universal Health.

Materiality was missing, for example, in the case of a government agency that knew about a highway guardrail provider’s alleged regulatory noncompliance but continued to approve of and pay for the guardrail, according to a recent Fifth Circuit ruling.

The next piece of the materiality puzzle could come with the Eleventh Circuit’s ruling in United States ex rel. Marsteller v. Tilton, in which a helicopter company said it can’t be liable for receiving contract payments despite ethics infractions, including an associate’s bribery and conflict of interest.

The Army continued to pay and award contracts after becoming aware of the misconduct, so the case can’t be revived, the company said.

Ethics compliance went to the essence of the parties’ bargain, and the Army never would have paid had it known about the ethics violations, the whistle-blowers said.

This is a matter of first impression for the Eleventh Circuit, and the district court’s dismissal preceded Universal Health and its views on materiality.

Determining materiality is dependent on the unique facts of each case.

However, a victory for the defendants here would continue the trend of defendants evading liability when the government knows about alleged noncompliance but pays anyway, and stifle plaintiffs that believe government reactions to alleged noncompliance should be among several considerations.

KBR Shielded by Military?

The next legal battle over when a defense contractor is entitled to battlefield immunity is In re KBR Inc., Burn Pit Litigation, in which soldiers harmed by exposure to waste burn pits in Iraq want the Fourth Circuit to reinstate their lawsuit against Kellogg, Brown & Root Services Inc.

KBR is immune from the suit under the political question doctrine because the military had control over the use of the pits, and the decision to use them to eliminate waste instead of using vulnerable convoys can’t be second-guessed, a district court concluded.

The case shouldn’t be reinstated because the military exercised pervasive control over all aspects of KBR’s contract performance, including the decision to use the burn pits, where to place them, and what to burn, KBR said.

Determining the validity of claims against KBR depends on the standard of care established by its contract, and not second-guessing the wisdom of military decisions, the soldiers said.

KBR was a self-sufficient force multiplier that received “scant” government oversight with regard to performing waste services, the soldiers said.

Plaintiffs can get past the political question and similar defenses by showing a gap between what a military support contract required and what a contractor did.

Such separation suggests a contractor operated independently of the military and the lawsuit shield it can provide.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bgov.com

To contact the editor responsible for this story: Daniel Ennis at dennis@bgov.com