DC Circuit: Government Contractor Can Rely On Supplier's Country of Origin Certification | Practical Law

DC Circuit: Government Contractor Can Rely On Supplier's Country of Origin Certification | Practical Law

The US Court of Appeals for the District of Columbia recently held in United States ex rel. Folliard v. Government Acquisitions, Inc. that a reseller reasonably relied on certifications from its supplier that products the reseller sold to the federal government complied with the Trade Agreements Act's (TAA) country of origin requirements. Therefore, the reseller did not knowingly violate the False Claims Act (FCA) even though those products did not comply with TAA requirements.

DC Circuit: Government Contractor Can Rely On Supplier's Country of Origin Certification

by Practical Law Commercial
Published on 01 Oct 2014 • USA (National/Federal)
The US Court of Appeals for the District of Columbia recently held in United States ex rel. Folliard v. Government Acquisitions, Inc. that a reseller reasonably relied on certifications from its supplier that products the reseller sold to the federal government complied with the Trade Agreements Act's (TAA) country of origin requirements. Therefore, the reseller did not knowingly violate the False Claims Act (FCA) even though those products did not comply with TAA requirements.
The US Court of Appeals for the District of Columbia recently held in United States ex rel. Folliard v. Government Acquisitions, Inc. that a reseller did not knowingly violate the False Claims Act when it reasonably relied on its supplier's certification that the supplier's products complied with the Trade Agreements Act's (TAA) country of origin requirements (No. 13–7049, (D.C. Cir. Aug. 29, 2014)).

Background

Govplace, a small business government contractor, sells Hewlett-Packard (HP) products to the federal government. It does not manufacture these products or buy them directly from the manufacturer. Instead, it obtains the products from a distributor's, Ingram Micro, General Services Administration (GSA) Pass Through Program.
Because Govplace sells products to the federal government, it must comply with the Trade Agreements Act (TAA), which prohibits the government from buying products that do not originate from either the US or TAA designated countries. To determine whether the HP products originated from designated countries, Govplace relied on Ingram Micro, which expressly certified through its GSA Pass Through Program that the HP products complied with the TAA.
For more information on the TAA and a list of TAA designated countries, see Practice Note, Buying American: Country of Origin Requirements in US Government Contracts: Trade Agreements Act.
Brady Folliard sued Govplace as a qui tam relator and alleged that Govplace knowingly violated the False Claims Act (FCA) by selling products to the government even though those products did not originate in designated countries.
For more information on the FCA, see Practice Note, Understanding the False Claims Act.
The district court granted Govplace's motion for summary judgement and held that Govplace did not knowingly violate the FCA because it reasonably relied on Ingram's certifications about the products' country of origin.

Outcome

The DC Circuit affirmed the district court's decision and held that Govplace did not knowingly violate the FCA. Under the FCA, a party acts knowingly when it:
  • Has actual knowledge.
  • Acts in deliberate ignorance.
  • Acts in reckless disregard.
The DC Circuit found that Govplace reasonably relied on Ingram's TAA certifications and therefore did not knowingly violate the FCA. The court found that Govplace's reliance on Ingram was reasonable for the following reasons:
  • Ingram expressly certified through its GSA Pass Through Program that the:
    • products' country of origin information was accurate; and
    • products generally complied with the TAA.
  • The GSA implicitly approved of Govplace's arrangement with Ingram because:
    • Govplace repeatedly told the GSA it relied on Ingram's certification that the products complied with the TAA; and
    • the GSA Administrative Report Cards evaluating Govplace all stated that the company complied with the TAA.
Folliard argued that Govplace's reliance was unreasonable because it received an:
  • E-mail from an HP employee indicating that some of Govplace's products were produced in China, a non-designated country.
  • Unsolicited price list from another company, which contradicted the country of origin information Govplace received from Ingram.
However, the court rejected both of these arguments because Govplace received the e-mails after it had already sold the products to the government and there was no evidence that Govplace ever read the unsolicited price list.

Practical Implications

TAA compliance has become especially difficult for federal government contractors in recent years as production of many common commercial products has moved to non-designated countries. To comply with government procurement requirements, businesses can rely on their supplier's certification that its products comply with the TAA and other applicable country of origin requirements. However, this reliance must be reasonable and government contractors should perform adequate due diligence on the party certifying compliance. For best practice tips on complying with federal country of origin requirements, see: