9th Circuit: Underbidding for Cost-Plus Contracts is False Claim

by Kurt Schulzke

False Claims Act liability can result from low-ball bidding on cost-plus government contracts, according to the 9th Circuit’s August 2, 2012 decision in U.S. ex rel Hooper v. Lockheed Martin Corporation, No. 11-55278 (9th Cir. Aug. 2, 2012).

Relator Nyle J. Hooper argued that Lockheed deliberately under-estimated its costs in support of a low-ball bid submitted to win an Air Force RSA IIA contract, thereby violating the False Claims Act.  Lockheed countered that “false” estimates cannot trigger FCA liability, because estimates are merely opinions or predictions and therefore not “false statements” under the FCA.  The United States filed an amicus brief supporting Hooper’s contention.  On this issue, the court sided with Hooper, holding that underbidding or low-balling is analogous to bid-rigging:

As a matter of first impression, we conclude that false estimates, defined to include fraudulent underbidding in which the bid is not what the defendant actually intends to charge, can be a source of liability under the FCA, assuming that the other elements of an FCA claim are met.

However, the court found the factual record inconclusive, and therefore remanded to the trial court for further findings, on whether Lockheed knowingly underbid within the meaning of the FCA.

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