$657 Million FCA Award against Jet Engine Contractor Reversed

A False Claims Act damages award was reversed and remanded by the Court of Appeals for the Sixth Circuit because the district court did not properly account for the role competition played in determining the fair market value of the jet engines sold by the contractor.

The dispute arose from contract awards in which the contractor, Pratt & Whitney, which is now owned by United Technologies, and another awardee, GE Aircraft,  competed for orders through annual “calls for improvements” seeking lower prices for the jet engines.

In a prior decision, the district court found the contractor liable under the FCA for misstating its costs in its initial bid for the work. The district court awarded the government statutory penalties but denied its request for additional damages on the ground that the false statements did not result in any damages.

The Sixth Circuit affirmed the finding of liability and the statutory fine, but it vacated the district’s court’s no-damages determination and asked the district court to recalculate damages based on the FMV of the engines independent of the fraud. On remand, the district court awarded the government $657 million in damages.

The Sixth Circuit reversed the award because the government did not meet its burden of proving damages.

According to the Sixth Circuit, the district court relied exclusively on the government expert’s price estimates as to the value of the contractor’s engines, and he “refused to consider either the role that competition … played in determining reasonable and fair prices, or whether that competition and the prices that resulted from it eliminated any damages to the government.”

This was inconsistent with the Sixth Circuit’s prior opinion. Also, the district court had previously found the competition affected prices due to the significant discounts the contractor gave each year through the CFI process, and that the government’s methodology failed to account for the role of competition in pricing and “ignore[d] the nature” of the contractor’s scheme, and the Sixth Circuit’s prior decision did not undermine these findings.

Further, the district court incorrectly determined, after accounting for the three flaws in its prior analysis, the FMV of the contractor’s engines.

Although the Sixth Circuit was “tempted to say that, after seventeen years of litigation about a fraud that occurred thirty-two years ago, the time has come to end this dispute,” it remanded the case back to district court because it was “in the best position to decide in the first instance whether the government should have another opportunity to prove that it suffered damages even after accounting for the role of competition in setting prices for [the contractor’s] engines.”

For more information, see the text of the Sixth Circuit’s decision (docket no. 13-4057).

About William Van Huis

Bill Van Huis is a Senior Writer/Analyst for Wolters Kluwer Law & Business who tracks and analyzes new regulations impacting federal government contracting. He also follows court decisions involving bid protests and contract disputes. You can find his work in WK publications like Government Contract Reports and the FAR and DFARS Matrix Tools. Bill is a Certified Professional Contracts Manager, and he has a law degree from Southern Illinois University, where he graduated summa cum laude. Prior to joining WK, Bill worked both inside and outside state and local government in the areas of procurement and municipal finance. Bill also worked as a staff attorney for the Illinois Supreme Court.
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