• R.D. Lieberman,Consultant

Knowingly Making False Statements to Obtain a Contract-Void Ab Initio Redux

There is a basic principle in contract law (previously discussed in these blogs) that a contract tainted by fraud or wrongdoing is void ab initio, i.e, void from the very beginning. If a contractor knowingly makes a material false statement which the agency relies upon, the contract will be deemed void by the Boards or the courts. Another good example of this principle is in Bryan Concrete & Excavation, Inc., CBCA 2882, August 26, 2012.

In Bryan, the Department of Veterans Affairs awarded a contract to upgrade a chiller at a Department of Veterans Affairs (“VA”) medical facility. The contract was set aside 100 percent for eligible Service Disabled Veterans Owned Small Businesses (“SDVOSB”). (Eligible SDVOSBs must have not less than 51 percent of the business owned by one or more service disabled veterans, or have not less than 51 percent of its publicly owned stock controlled by one or more service disabled veterans or, in the case of a veteran with a permanent and severe disability, a spouse or permanent caregiver. 38 C.F.R. §74.1. Furthermore, the ownership must be unconditional, and veterans or service disabled veterans must exercise control of both day to day management and long term decision making authority of the business. (38 C.F.R. §74.3, 74.4.)).

After problems occurred during Bryan’s performance, the VA contracting officer terminated the contract for default. During an appeal of the default, VA discovered that Bryan had entered into a teaming agreement with an individual (who was not a service-disabled veteran) through which that person took over management and control of Bryan. As a result of the teaming agreement, Bryan did not meet the eligibility requirements for SDVOSB contracts. In the appeal, VA asserted that the contract was void ab initio, and the Board agreed.

The VA showed that Bryan obtained the contract through a material misrepresentation of its eligibility to bid on an SDVOSB set aside contract at the VA with the intention of obtaining the contract, and the VA relied on Bryan’s misrepresentation in awarding the contract. While litigating at the Board, Bryan attempted to enforce a new and different contract but the Board refused to even consider the illegal contract. The Board noted that no tribunal of law would lend its assistance to carry out the terms of an illegally obtained contract.

The takeaway is simple: make no material misrepresentations (such as small business or SDVOSB eligibility) in order to obtain a contract, or that contract may be voided if and when the misrepresentations are discovered. Even if a contractor is correct in its appeal of a default for lack of satisfactory performance, the misrepresentation will void the contract.

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Square Corners

Nearly 100 years ago, U.S. Supreme Court Justice Holmes wrote “Men must turn square corners when they deal with the Government.” Rock Island, Ark. & LA RR Co. v. United States, 254 U.S. 141, 143 (19

The website of Richard Donald Lieberman, a government contracts consultant and retired attorney who is the author of both "The 100 Worst Mistakes in Government Contracting" (with Jason Morgan) and "The 100 Worst Government Mistakes in Government Contracting." Richard Lieberman concentrates on Federal Acquisition Regulation (FAR) consulting and training, including  commercial item contracting (FAR Part 12), compliance with proposal requirements (FAR Part 15 negotiated procurement), sealed bidding (FAR Part 14), compliance with solicitation requirements, contract administration (FAR Part 42), contract modifications and changes (FAR Part 43), subcontracting and flowdown requirements (FAR Part 44), government property (FAR Part 45), quality assurance (FAR Part 46), obtaining invoiced payments owed to contractors,  and other compliance with the FAR. Mr.Lieberman is also involved in numerous community service activities.  See LinkedIn profile at https://www.linkedin.com/in/richard-d-lieberman-3a25257a/.This website and blog are for educational and information purposes only.  Nothing posted on this website constitutes legal advice, which can only be obtained from a qualified attorney. Website Owner/Consultant does not engage in the practice of law and will not provide legal advice or legal services based on competence and standing in the law. Legal filings and other aspects of a legal practice must be performed by an appropriate attorney. Using this website does not establish an attorney-client relationship. Although the author strives to present accurate information, the information provided on this site is not guaranteed to be complete, correct or up-to-date.  The views expressed on this blog are solely those of the author. FAR Consulting & Training, Bethesda, Maryland, Tel. 202-520-5780, rliebermanconsultant@gmail.com

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