(Editor’s Note.  The following should address common concerns about whether underbidding can constitute potential fraud claims.)

In 1993 Lockheed bid was awarded a NASA cost plus award fee research and development contract. Mayfield, a Lockheed specialist responsible for preparing monthly and quarterly R&D contract cost estimates on 533 forms, was concerned the projections on the 533s underestimated the actual costs (overruns were 13 and 18% in the first two evaluation periods) and though Lockheed and NASA took action to remedy the projections, he continued to complain about the 533s after which he was fired. After his failed unlawful discharge action he then filed a qui tam suit action against Lockheed alleging violation of the False Claims Act asserting Lockheed intentionally underbid the contract and submitted false 533s.

The Court found no evidence suggesting Lockheed’s proposal was fraudulent and found the cost overruns were largely attributable to NASA who made alterations in the R&D contract. Under prior case law, Mayfield would have had to prove Lockheed did not intend to perform according to the terms of its proposal and that it obtained contract payments to which it was not entitled to which Mayfield was unable to prove. The Court pointed out that Mayfield’s inference that Lockheed underbid the contract while intending to charge its real costs from the beginning “ignores the realities” of CPAF-type contracts where its central purpose is to afford the government the flexibility to purchase labor in an unpredictable environment. The Court concluded a contract underbid is not a false claim. The Court also dismissed Mayfield’s assertion the 533 forms that underestimated actual costs were fraudulent explaining they were “immaterial” because they were only cost projections that did not independently entitle Lockheed to award payments nor did they either actually or potentially affect NASA’s decision to pay fees (US ex rel. Laird v Lockheed Martin, 2007 WL 1930743). 

{TAG_FORM_TITLE}