On May 16, 2022, the US Court of Appeals for the Sixth Circuit held that a plaintiff-relator adequately pled False Claims Act (FCA) violations based on a defendant’s alleged inflation of labor cost estimates when negotiating a firm-fixed-price contract with NASA—even though NASA’s payments were based on the contract prices, not the estimates.

In United States ex rel. USN4U, LLC v. Wolf Creek Federal Services, Inc., 2022 WL 1531966, --- F.4th --- (6th Cir. 2022), the relator alleged that Wolf Creek Federal Services and several of its employees submitted falsely inflated project estimates to NASA for facilities maintenance projects, resulting in fraudulently induced, exorbitant contract prices.

According to the complaint, when NASA wanted Wolf Creek to complete a maintenance project, it required Wolf Creek to submit a proposal setting forth the schedule of the project and the proposed total cost (including labor hours, material costs, equipment costs, and markups). NASA then reviewed the proposal and could negotiate a final price and schedule before awarding a firm-fixed-price contract.

Under the Federal Acquisition Regulations (FAR), a “firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.” 48 CFR § 16.202-1. FAR recognizes that this type of contract places “maximum risk” on the contractor for the “costs and resulting profit or loss,” with the aim of incentivizing “...

Read Full Story: https://www.natlawreview.com/article/federal-contractors-beware-firm-fixed-pr...