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Vax Rule’s ‘Gray’ Areas May Help Contractors Beat Fraud Claims

Oct. 20, 2021, 9:56 AM

Attorneys who try to shield federal contractor clients from fraud suits have many questions about how the White House’s Covid-19 vaccine mandate is going to be enforced and what it takes to evade False Claims Act liability.

The compliance due date is Dec. 8, and contractors don’t want to be accused of entering into a contract while planning not to comply or submitting claims for payment while knowing they didn’t comply with what was specifically demanded in their contract.

This concern is arguably amplified by unanswered questions about employees’ medical and religious exemptions, how a good-faith effort will be viewed, and how government agencies might punish noncompliance.

While perhaps frustrating now, confusion over these issues may come in handy should a whistleblower or a Justice Department lawsuit claim that failing to comply with the mandate violated the FCA.

State of Mind

A successful FCA claim requires showing scienter, or a knowing act to defraud the government. And a genuine effort to quickly satisfy the rules in spite of uncertainty may provide a strong defense to whatever FCA suits may come.

“The more ambiguity, the less likely we would be to file an FCA case,” said Julie K. Bracker, who represents whistleblowers with Bracker & Marcus LLC in Atlanta.

There is potential for would-be whistleblowers to report that their employer wasn’t following the new rules as they, the employee, understands them, she said.

“But when there is a lot of reasonable confusion about how a new provision will be enforced, it is very difficult to show that any particular contractor had the mental state that is an element of proof required by the FCA,” Bracker said.

The FCA doesn’t target accidental noncompliance, which happens when things are confusing, unsettled, or even ambiguous, she said.

Compliance Challenges

It’s difficult to map out the range of noncompliance issues that could arise given evolving requirements that will be applied across many projects, Roderick L. Thomas of Wiley Rein LLP in Washington said.

“If an issue involves a gray area or ambiguity, or if a contractor is transparent with its government customer about its interpretations or challenges in meeting temporal or substantive requirements, I would expect scienter to be a strong defense,” he said.

An FCA case “would have some problems” as long as a covered contractor has an action plan designed to achieve full compliance, the action plan is reasonably followed, and there are no obvious loopholes or areas of known noncompliance, said Dismas Locaria of Venable LLP in Washington.

“Given the confusion swirling around this EO and the relative short timeframe that organizations have to comply, perfection would seem unreasonable,” he said.

There would have to be a flagrant violation of the mandate or falsification of vaccination or employment records to create FCA liability for federal contractors, said David K. Colapinto of Kohn, Kohn & Colapinto LLP in Washington, a law firm that represents whistleblowers.

Contractors that outright refuse to comply could be subject to FCA claims, assuming the mandate is a material condition of receiving federal funding, he said.

Enforcement

Contracting attorneys have already heavily disputed what it takes to allege materiality in an FCA suit, before the vaccine mandate was issued.

If the government tells contractors they must have fully vaccinated workforces and then does very little to punish noncompliance, that would weigh against materiality and damage potential FCA suits.

VIDEO: President Biden’s vaccine mandate rule for companies, the likely legal challenges and what to expect next.

But it remains to be seen how agencies will address noncompliance—"whether they will continue to pay, issue corrective action requests, terminate contracts, or take other actions or not,” Wiley Rein’s Thomas said.

Lists Required?

“So far there is no one overseeing all of this, other than OMB for federal employees,” Barbara S. Kinosky, managing partner of Centre Law and Consulting LLC in Tysons, Va., said.

Kinosky said she suspects the Office of Management and Budget “will be requiring contractors to provide some sort of vaccine list so they know who is allowed on federal sites.”

“I would not be surprised if this mandate also becomes a representation or certification,” Kinosky said.

Transparency Key

Another issue that could affect future FCA litigation is whether the government actually is harmed by receiving services from a contractor without a vaccinated workforce, said Casey K. Lee of Gibson, Dunn & Crutcher LLP in New York.

“Defendants will argue that the government is not damaged if it received the same services it would have paid for, but from a contractor that was not fully compliant with a vaccine requirement; DOJ will likely argue the contract as a whole was tainted based upon the alleged false statement because that was a core premise of ‘the deal,’” he said.

In the meantime, transparency with the government will be key to mitigating risk, said Stephanie M. Harden of Blank Rome LLP in Washington.

“Contractors will want to be able to demonstrate that they shared in writing any obstacles they faced to achieving full compliance with their contracting officer, so that there can be no question as to whether the government was misled regarding their compliance,” she said.

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

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com

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