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Court Rejects FCA Claim Based on SBA Program

A government contractor that received payments from federal agencies cannot be sued under the False Claims Act for allegedly making false statements on a form identifying the contractor as a participant in the Small Business Administration’s Section 8(a) Business Development Program; the Alexandria U.S. District Court says the SBA makes the determination whether the contractor is in compliance with the program.

Program eligibility

The Small Business Administration administers two programs that are relevant to this case. One is the SDVOSB Set-Aside Program and the other is the 8(a) Business Development Program. Relator alleges that, between 2007 and 2015, defendant Thermcor Inc. submitted materials to the SBA containing false certificates that misrepresented defendant’s eligibility for those two programs.

While Thermcor never obtained any contracts under the SDVOSB program, it did make successful contract bids under the 8(a) program, which is designed to aid small businesses that are owned by a disadvantaged individual.

The magistrate judge concluded that Thermcor’s conduct falls outside the scope of FCA liability because it did not receive payments on any SDVOSB contracts, and its eligibility certifications, whether false or not, did not relate to the goods or services provided to the government. The magistrate judge further concluded that the certifications were not otherwise material to the government’s decision to pay the claims Thermcor made. He recommended the court grant judgment for Thermcor. Relator has filed objections.

The court agrees that the allegedly false statements made on Thermcor’s 8(a) renewal applications are not actionable under the FCA. The fact that Thermcor’s express certifications of 8(a) compliance were made to the SBA and not the Navy, Coast Guard or other contracting agencies is significant. Defendants did not seek payment from the SBA and thus, their submissions to the SBA were not claims for payment.

Thermcor was an 8(a) participant because the SBA said it was. Certification, renewal and consequently, general participation in the 8(a) program are discretionary SBA decisions that cannot be revoked by the relator’s competing interpretation of what the 8(a) regulatory scheme requires. Quite simply, an 8(a) business is a business that participates in the 8(a) program. Thermcor participated in the 8(a) program. Because Thermcor was an 8(a) business, no false statement was made in a transaction involving a call on the U.S. fisc when, in making its ultimate claims for payment on contracts, Thermcor represented itself as an 8(a) participant.

Further, the statements made by Thermcor on the 8(a) renewal applications were not so central to the 8(a) program that the government would not have paid these claims had it known of the statements. FCA liability here would interfere with other regulatory mechanisms and compromise their policy goals. Action by the SBA is discretionary under the regulatory scheme, and it is probably so designed with the intention that businesses owned by disadvantaged individuals who fail to dot every “i” and cross every “t” will not automatically be removed from the program.

The court overrules relator’s objections and adopts the magistrate judge’s report and recommendations in full, granting summary judgment for defendant.

A1 Procurement LLC v. Thermcor Inc. (Smith) No. 2:15cv15, July 5, 2017; USDC at Norfolk, Va.; Jeremiah A. Denton for plaintiff; Barry C. Hodge for defendant. VLW 017-3-349, 21 pp.

VLW 017-3-349