Client Alert
April 3, 2014
Recent FCA Decision Has Important Implications for
Contractor Disclosures to the Government
By Richard J. Vacura, Pablo A. Nichols and Sara Bartel
A recent decision from the U.S. District Court for the Eastern District of Virginia has important implications for
government contractors that make mandatory disclosures of improper conduct to the U.S. Government.1 In U.S.
ex rel. Saunders v. Unisys Corporation, No. 1:12-cv-00379, the district court held that disclosures by Unisys Corp.
to the Department of Defense (DOD) Office of Inspector General (OIG) regarding Unisys’s “unacceptable” billing
did not qualify as a public disclosure under the False Claims Act (FCA), 31 U.S.C. § 3730(e). Under the district
court’s reasoning, the public disclosure defense is not available to contractors making disclosures to the OIG,
unless the disclosures are also made available to the general public. Moreover, the contractor cannot merely
disclose information related to the fraud, but must publicly disclose, at a minimum, the facts from which fraud can
be reasonably inferred.
UNISYS’S ALLEGED CONDUCT2
In 2007, Unisys began providing information technology services to the U.S. Army under a task order (TO 122)
that contained both time and materials (T&M) and firm fixed price (FFP) contract line items. After a few months of
billing, Unisys found it was at risk of going over the Army’s T&M budget. The Army converted some T&M tasks
into FFP tasks, and the company soon realized the new billing practices would render the task order unprofitable.
In February 2008, Unisys allegedly sought to restore TO 122 to profitability by implementing the “red/blue” plan,
which ensured that 50% of all tasks were billed to T&M and 50% would be billed to FFP regardless of the Army’s
actual billing designations. It is alleged that the “red/blue” plan resulted in at least $13,474,000 in overcharges to
the U.S. Army over the next two and a half years.
Sometime later, Unisys received an internal allegation of unethical billing involving TO 122. In 2010, Unisys
conducted an internal investigation and asked relator Michael Saunders, a partner in Unisys’s Federal Systems
Division, to present the report to the OIG.3 The report described Unisys’s billing practices as “unacceptable,” but
it did not admit that the practices led to actual overbilling.
Shortly after Unisys filed the final report with the OIG, Saunders learned of several facts that he claims Unisys
had concealed from the report and that form the basis of his lawsuit. For example, the alleged conduct that the
report failed to mention included: that Unisys’s senior managers directed the creation of the “red/blue” plan, a
description of how the plan operated, and the plan resulted in $13 million in overbilling. Saunders informed senior
1 Government contractors are required by 48 CFR 52.203-13 to timely disclose to the agency Office of Inspector General, with a copy to the
contracting officer, whenever, in connection with the award, performance, or closeout of a covered government contract or subcontract, the
contractor has credible evidence of: a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violation found
in Title 18, United States Code, or a violation of the civil False Claims Act (31 U.S.C. §§3729-3733).
2 Unless otherwise noted, this case summary is based on the factual allegations and legal reasoning found in Judge Gerald Bruce Lee’s
opinion. See U.S. ex rel. Saunders v. Unisys Corp., No. 1:12-cv-00379 (March 21, 2014).
3 Saunders was not involved in the creation or implementation of the “red/blue” plan, and he did not partake in the internal investigation.
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