Competitors Are Continuing to Police One Another on Compliance Issues

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More and more, government contractors have their competitors to blame when they find themselves on the wrong end of government enforcement efforts. Two recent cases involving General Services Administration (GSA) contractors underscore the dangers of non-compliance in today’s government marketplace – and how easily your business rivals can become whistleblowers.

In the first, contractor Malcolm Wilson lost out to a company called Supplies Now, Inc. in a competition for office lamps and suspected that the winning contractor had proposed and was selling products manufactured in China. In addition to rendering Supplies Now ineligible for award, such an action would constitute a violation of the Trade Agreements Act prohibition on purchases of products from non-designated countries like China. Mr. Wilson followed up on his suspicion by filing a Freedom of Information Act request and learned the name of the lamp manufacturer. When he e-mailed the manufacturer and asked where the lamps in question were made, the company confirmed his suspicions by responding that the lamps had been made in China.

At this point, presumably long after any protest was possible, Mr. Wilson did the next best thing: he filed a False Claims Act lawsuit against Supplies Now. One year later, the company agreed to pay $270,000 to resolve the case just as the Department of Justice (DOJ) intervened in the case. The GSA Inspector General announced the settlement on July 30, 2013. As Mr. Wilson’s attorney explained, competing vendors often “know where a product came from simply by its price point.” And when they do, they will not sit on that information. More importantly, when the information demonstrates a violation, the Government will get involved.

That is precisely what has happened in the very similar case of Florida-based Capitol Supply, which allegedly falsely certified that the office shredders it sold federal agencies were manufactured in the U.S. or designated countries when they were in fact from China. The False Claims Act lawsuit was originally filed in 2010 by Mario Industries, a competitor in Northern Virginia. Back in April of 2013, the Justice Department decided to intervene. In this case, however, the involvement of the Justice Department has not led to a settlement. Capitol Supply has asked the Court to dismiss the lawsuit, arguing that the company relies on third parties for the accuracy of information about the millions of products that it sells.

Regardless of how the Capitol Supplies lawsuit is ultimately resolved, the damage has arguably been done. At the time of the DOJ’s intervention in April, the GSA Inspector General’s office was still seeking sales and country of origin data from the company. The cost and impact on operations has likely been significant.

The bottom line for contractors? Make sure you comply with the rules because the Government is not the only one watching you. Having your competitors on the lookout for your missteps makes the discovery of any non-compliance more likely than ever. On the other hand, keep an eye on what your rivals are doing: whistleblowing can be a two-way street. 

Eric Whytsell is the attorney responsible for the content of this article.

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