Daewoo Engineering and Const. Co., Ltd. v. United States

Court of Appeals for the Federal Circuit
557 F.3d 1332 (2009)

ELI5:

Rule of Law:

A government contractor who submits a certified claim for payment that it knows is baseless, containing grossly inflated or unsupported costs as a negotiating tactic rather than a good faith belief of entitlement, commits fraud under the Contract Disputes Act and the False Claims Act. If any part of a claim is found to be fraudulent, the entire claim is subject to forfeiture.

Facts:

In 1998, the U.S. Army Corps of Engineers solicited bids to build a road in the Republic of Palau.
Daewoo Engineering and Construction Co., Ltd. ('Daewoo') submitted a bid of $73 million, which was significantly lower than the next lowest bid of $100 million.
After the government questioned the price, Daewoo revised its bid to $88.6 million and was awarded the contract in March 1999.
During construction, Daewoo experienced delays which it attributed to weather and soil conditions.
The government accommodated Daewoo by agreeing to reduce certain soil compaction requirements specified in the contract.
On March 29, 2002, Daewoo submitted a certified 'request for equitable adjustment' to the government.
The request sought $13,348,793.07 for costs incurred through December 31, 2001, and an additional $50,629,855.88 in projected future costs, for a total claim of nearly $64 million.

Procedural Posture:

Daewoo submitted a certified claim for equitable adjustment to the government's contracting officer.
The contracting officer denied Daewoo's claim.
Daewoo filed a complaint against the United States in the U.S. Court of Federal Claims, a court of first instance.
The United States filed a counterclaim, alleging violations of the Contract Disputes Act and the False Claims Act, and sought forfeiture of Daewoo's claims.
The Court of Federal Claims, after a trial, found Daewoo had committed fraud, awarded the government over $50.6 million in penalties, and declared Daewoo's own claims forfeited.
Daewoo, as appellant, appealed the judgment to the U.S. Court of Appeals for the Federal Circuit.

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Issue:

Does a government contractor violate the Contract Disputes Act and the False Claims Act by submitting a certified claim for equitable adjustment that includes grossly inflated and unsupported future costs as a negotiating tactic, rather than as a good faith estimate of damages for which the government is liable?

Opinions:

Majority - Dyk, Circuit Judge.

Yes. A contractor violates federal fraud statutes by knowingly submitting a baseless certified claim as a negotiating tactic. The court determined that although the claim document was ambiguous on its face as to whether it was a claim for $13 million or $64 million, extrinsic evidence, including Daewoo's own complaint and initial trial testimony, overwhelmingly showed it intended to claim the full $64 million. The court found the $50.6 million portion for projected future costs was fraudulent because it was not based on a good faith calculation of liability. Instead, Daewoo simply assumed the government was responsible for all future delays and multiplied its current daily costs by the number of extra days, a method its own experts later disregarded as worthless. The trial court's finding that this was a 'negotiating ploy' rather than an honest belief of entitlement was well-supported. Submitting a knowingly baseless claim violates the certification that the claim is made in 'good faith' and constitutes fraud under the Contract Disputes Act. This finding also supports liability under the False Claims Act and the complete forfeiture of Daewoo's claims under 28 U.S.C. § 2514, as fraud in any part of a claim taints the whole.

Analysis:

This decision reinforces the serious consequences for government contractors who inflate claims for negotiating leverage. It clarifies that the 'good faith' certification on a claim under the Contract Disputes Act is a substantive requirement, and a knowingly baseless calculation can constitute fraud, not just an aggressive bargaining position. The ruling serves as a stark warning that 'horsetrading' by submitting unsupported claims can lead not only to massive financial penalties but also to the complete forfeiture of any potentially meritorious parts of the claim. This precedent strengthens the government's ability to combat fraudulent claims and holds contractors to a high standard of honesty and accuracy in their submissions.

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