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Safe Invoicing: Avoiding the Hazards of Implied False Certification

Recent cases make invoicing for services more hazardous; here’s how to avoid the risks of “implied false certifications”.

Under the implied false certification theory, when a Prime Contractor or Subcontractor submits an invoice to the government or the Prime, it impliedly certifies compliance with all conditions of payment, such as statutory, regulatory, or contractual requirements associated with the labor category appearing on the invoice. If a contractor fails to disclose a violation of these requirements, it may have violated the False Claims Act (FCA) by making a false or fraudulent claim.

Although the risk of running afoul of the implied false certification theory was historically unclear, the United States Supreme Court made the theory’s application much more likely in a case called Universal Health Services v. United States ex rel. Escobar. And recent decisions have seemingly expanded the holding to potentially cover all invoices for services presented for payment to the government or, if subcontracting, to your prime.

In Escobar, a teenager who received counseling services at a Massachusetts mental health clinic died after suffering an adverse reaction from a medication prescribed by a clinic practitioner. The teenager’s parents later discovered that the clinic practitioner, who prescribed the medication and held herself out to be a psychiatrist, was actually a nurse who was not authorized to prescribe medications. The Court concluded that the resulting invoice (submitted by the clinic for reimbursement under Medicaid) contained codes relating to specific job titles and was therefore an implied false certification that the employees had all the qualifications they were required to have, such as a license to practice psychiatry.

Recently, in Academi Training Ctr., Inc., the Escobar rationale was extended by a Federal court sitting in Alexandria, Virginia, to include potentially all providers of services to the Federal government. The Court in Academi found that a contractor’s invoicing for firearms instructors was strikingly similar to the defendant’s invoicing for medical services in Escobar, where the instructors lacked qualifications required by the government. The Court’s reasoning seems to have broadly adopted the implied false certification theory as it applies to government contractors.

The Virginia court concluded that “in billing the government, [the contractor] made the same type of misrepresentations as did the defendant in Escobar… defendant used payment codes…indicating that defendant’s [personnel] provided particular services, such as weapons instruction. Just as the clinic’s employees used identification numbers “corresponding to specific job titles,” defendant’s invoice in this case repeatedly refers to job titles […] Further, just as the clinic’s use of the payment codes represented “that it had provided [various medical services],” defendant’s use of the [] billing code represented that defendant had staffed fully qualified, weapons-trained [personnel] on its security assignments.” The Court found that the invoices contained an implied false certification, cognizable under the FCA.

Because invoices for services are generally required to specifically identify the personnel being provided, by CLINS and/or job titles, for example, each is arguably subject to the doctrine of implied false certification. A mistake in vetting and qualifying personnel could quickly go from dangerous to calamitous, particularly if the mistake isn’t identified prior to the issuance of a corresponding invoice.

When vetting personnel prior to placement on contract, contractors must scrupulously confirm that the candidate’s background satisfies each and every requirement of the customer’s labor category requirements. This is true with respect to every required qualification (e.g., years of experience, education, PCL clearance level and status, and professional certifications). Further, contractors should adopt quality assurance policies designed to identify and exclude non-qualifying personnel long before they are presented to the customer, placed on site, and invoiced for.

These developments pose yet another avoidable hazard for companies doing business with the government. You can easily protect your company by taking steps now to avoid making an implied false certification tomorrow.