Disclaimer:
This article should not be used as legal advice. All parties should consult legal counsel of their choice and seek expert advice on legal and compliance issues.
The July 2017 decision in United States ex rel. Scollick v. Narula[1] (Scollick), determined that sureties and surety agents could be held liable under the False Claims Act (FCA) for bonding a fraudulent set aside contractor. The complaint alleged that a larger contractor set up a sham company, supposedly owned and operated by a service-disabled veteran, but actually controlled by the larger contractor to illegally bid on service-disabled veteran-owned small business (SDVOSB) contracts from the federal government. Although the 2017 Scollick opinion was decided at the pleading stage and therefore did not find any party liable, it was the first decision to hold that a surety could face potential FCA liability for bonding a fraudulent set aside contractor.
Five years later, on July 29, 2022, all claims against the surety defendants in Scollick v. Narula[2] were dismissed on summary judgment. In the 2022 Scollick opinion, the judge found no evidence that the surety defendants knew of the SDVOSB requirements or intended to deceive the government. Without such evidence, the whistleblower could not prove that the surety defendants knew or should have known that the bonded contractors’ statements to the government were false as required for FCA liability.
The judge also found that the sureties and agent were...
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