(Editor’s Note.  What constitutes common control over various firms conducting business together is often murky.  The following case provides some light and suggests some  protective actions to take to avoid problems).  

General Atomics (GA) subcontracted with Alliance Staffing Associates for temporary labor services on various cost type contracts between 1992-1997 with numerous government agencies.  Alliance was funded by a company which was affiliated with GA and managed by a former GA employee.  GA had concluded there was no common control over Alliance and informed DCAA of this conclusion during an audit of several purchase orders for temporary staffing.  The auditors found no common control between the companies.  GA awarded the contract to Alliance even though its bid was $100,000 higher than other bids but negotiated the difference down to $50,000.  In a separate audit, DCAA concluded this corrective action complied with its earlier recommendation.

A plaintiff in a qui tam case alleged the GA invoices included false claims from Alliance by the inclusion of profit in the payments which violated FAR 31.205-26(e) that excludes profits on sales between “divisions, subdivisions, subsidiaries and affiliates” under the common control of a contractor.  In determining whether affiliation exists, the court looks to factors such as common ownership, common management and contractual relationships.  The Court ruled there was no common control between GA and Alliance and hence there was no false claims.  No evidence was produced showing that Alliance’s shareholders held any direct interest in GA or positions of management, employment or influence at GA or exercised any influence over GA decisions.  In addition, while the president of Alliance attended GA director’s meetings and provided input into GA’s decision to outsource temporary labor she “did not transform the relationship of GA to Alliance into one of common control or ownership.”  Further, the relationship between GA and Alliance was fully disclosed to DCAA and though their job is not to “ferret out fraud” it was DCAA’s responsibility to ensure GA’s contract billings complied with the FAR (United States ex. Rel. Kholi v General Atomics, 00cv1870JM(LAB).  

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